Wall Street climbed on Friday as investors looked beyond a dour but widely expected surge in US unemployment, putting the benchmark S&P 500 on track for its first weekly gain in three weeks.
The S&P 500 was up 1.4 per cent in lunchtime trading in New York, following equities in Europe and Asia higher. The global stock gains were driven in part by signs of thawing US-China trade tensions and further indications the worst of the coronavirus pandemic may have passed in many large economies.
Data out of Washington showed a 20.5m drop in US payrolls in April, the largest decline on record, with unemployment rising to nearly 15 per cent. But investors had been girded for worse.
“The worst monthly job losses ever, by a wide margin, were completely predictable,” said Peter Tchir, the head of macro strategy at Academy Securities. “We talked about record-setting underemployment in early March when states started shutting down. The weekly claims numbers have told the story.”
The composite Stoxx 600 Europe index climbed 0.9 per cent on Friday, with benchmarks in Frankfurt and Paris up more than 1 per cent each. Stocks in Tokyo rallied more than 2 per cent, while Hong Kong’s Hang Seng gained 1 per cent. London’s markets were closed for a public holiday.
The uptick across equity bourses was tipped on easing trade tensions after top US officials said their trade pact with China remained on track despite continued strains over the spread of the virus.
In the US, the gains followed a rally a day prior on the Nasdaq Composite, which wiped out this year’s losses on the back of vigorous advances for big tech companies, including Apple, Amazon, Alphabet, Facebook, Netflix and Microsoft.
Markets around the world have rebounded at a historic pace, with MSCI’s measure of global equities rallying by a quarter in just 34 trading days since reaching a bear market trough on March 23. But the benchmark is still down 15 per cent from the end of 2019.
Investors’ confidence has been bolstered in recent weeks by a “significantly improved” outlook on the trajectory of Covid-19 and governments’ abilities to begin reopening their economies, said Marko Kolanovic, head of quantitative and derivatives research at JPMorgan.
“We saw an earlier-than-expected apex and lower peak of hospital resource use, broader-than-expected spread of the virus, and estimate a lower mortality rate than consensus models,” he said. “This means economic activity could pick up sooner than most expected, and any potential future virus waves are likely to be less severe.”
Mr Kolanovic said that while the collapse in economic activity brought on by lockdowns was unprecedented, “so too is the global policy response to cushion the impact and support a recovery as containment measures are relaxed”.
In April, employment fell sharply across industries, with large declines in leisure and hospitality, education and manufacturing. Investors and analysts have struggled to balance the market’s rebound with the economic collapse witnessed across the country.
“If there is a silver-lining in today’s dismal jobs report, it is in the realisation that the economy cannot possibly get any worse than it is right now,” said Chris Rupkey, an economist with MUFG in New York. “Joblessness can only diminish from this point forward as many states start reopening.”
In the European fixed-income markets, traders were bracing themselves for a ratings decision by Moody’s on Italy, due after the close of trade on Friday. The country’s creditworthiness is just above speculative grade, or junk, with the rating company. While a downgrade is considered unlikely, even a reduction in Moody’s outlook could spark fresh selling pressure in Italy’s government bond market, one of the biggest in Europe, fund managers say.
Oil prices edged higher on Friday on optimism over an eventual economic recovery following the virus emergency.
Goldman Sachs said this week that demand for oil was set to outstrip supply as early as next month. The bank said a rapid increase in demand as countries loosened lockdown restrictions, coupled with a drop-off in supply as producers slashed output, meant the market was on the cusp of rebalancing.
Brent crude, the international benchmark, climbed 2.5 per cent to $30.19 a barrel. West Texas Intermediate, the US marker, gained 3 per cent to $24.30.