European stocks rise on cautious optimism over reopening economies
European stocks shifted higher on Thursday as countries across the continent moved towards reducing lockdown measures in an attempt to restart their flagging economies.
The Stoxx Europe 600 was up 0.8 per cent in late morning trade, while the Cac 40 in Paris and Dax 30 in Frankfurt were each up 0.9 per cent. In London, the FTSE 100 edged up 0.2 per cent.
European states have begun to unveil tentative timelines for a return to normality. Germany on Wednesday joined a list of countries including Austria, Denmark and the Czech Republic that have announced plans to relax widespread shutdown measures. Smaller German shops will be allowed to open from next week, with schools returning early next month.
The UK is expected to extend its lockdown on Thursday until early May, but hopes have risen that a gradual easing of restrictions will begin next month.
Lee Hardman, currency analyst at MUFG, said the German announcement provided a “small chink of light” amid some otherwise bleak news. But he cautioned that the return to normality will take time. “Economic activity is unlikely to pick up more notably until later this year in the best-case scenario,” he said.
A slowdown in infections and sweeping monetary and fiscal intervention have caused European stocks to climb more than 20 per cent from their mid-March nadir, after plummeting by almost 40 per cent as sweeping restrictions were imposed to stem the spread of the virus. But analysts are wary about whether the recovery can be sustained.
“This rally in equity markets is probably too far too fast, and there are probably still downside risks from here,” said Peter Oppenheimer, chief global equity strategist at Goldman Sachs. “But we will see a strong recovery in the economy starting in the second half of this year and that will generate a reasonable recovery in risk assets.”
The upbeat mood in Europe followed a more pessimistic Asian trading day after the IMF warned that growth in the region would grind to a halt for the first time in six decades due to coronavirus.
Japan’s benchmark Topix index fell 0.8 per cent, while Australia’s S&P/ASX 200 shed 0.9 per cent and Hong Kong’s Hang Seng index dropped 0.6 per cent. China’s CSI 300 index of Shanghai and Shenzhen-listed stocks bucked the trend, however, to add 0.1 per cent.
The losses followed a report from the IMF that forecast an “unprecedented” hit to the region’s economies, with growth slowing to virtually zero this year. The IMF estimated that Chinese GDP growth will fall to just 1.2 per cent in 2020.
Overnight the S&P 500 closed 2.2 per cent lower following a choppy trading session. Futures markets tipped the Wall Street stock benchmark to rise 0.5 per cent when trading begins later in the day.
Strategists said investors were unlikely to find any sources for hope when China reports its first-quarter GDP figures on Friday, in what is expected to be the week’s most important economic reading.
The data “may not provide much optimism on a quick turnround in economic recovery, since external demand is now a new threat to the Chinese economy and domestic demand is recovering only gradually”, said Tai Hui, chief market strategist for Asia at JPMorgan Asset Management.
Brent crude, the international oil benchmark, gained 2.4 per cent to trade at $28.34 a barrel. It has lost more than 10 per cent this week, however, as traders remained unconvinced by an Opec deal that promised the biggest cuts to production in history in the face of a collapse in demand brought about by the pandemic.
The 10-year US Treasury yield was largely unchanged at 0.639 per cent.
Additional reporting by Katie Martin in London