Stocks, euro rise on recovery hopes, US-China row lifts gold

Equity markets climbed on Thursday as more businesses returned to work and as a 750-billion-euro stimulus plan in Europe lifted regional stock indices and the euro, but gold rebounded on deteriorating US-China relations.

Oil prices were flat to slightly lower as the market awaited confirmation of industry data that on Wednesday showed a surprise increase in US crude stocks, which offset hopes for a demand recovery as coronavirus-linked lockdowns ease.

Gold jumped 1% on safe-haven demand as a US-Sino rift deepened over further moves by Beijing to impose a national security law on Hong Kong. But equity and bond markets largely ignored the standoff.

China’s parliament approved national security legislation for Hong Kong that democracy activists say could erode the territory’s freedoms and jeopardise its role as a global financial hub.

Investors have largely turned a blind eye to renewed US-China tensions and instead are focused on the reopening of business activity, said Candice Bangsund, a global asset allocation portfolio manager at Fiera Capital in Montreal.

“Stocks have maintained that positive momentum largely reflecting optimism that growth will recover as COVID lockdowns are eased and economies progressively reopen,” Bangsund said.

“Enhanced government stimulus announcements this week out of Europe and Japan have emboldened that risk-on trade,” she said.

In Europe, the pan-regional STOXX 600 index rose 1.42% to a fresh 11-week high on the European Union’s plan to prop up the bloc’s coronavirus-hit economies with the 750 billion euro ($828 billion) recovery fund.

The euro rose 0.4% to $1.1047, a two-month high. The dollar index fell 0.248%.

Stocks on Wall Street rose, though less than Europe. The Dow Jones Industrial Average rose 59.41 points, or 0.23%, to 25,607.68. The S&P 500 gained 9.48 points, or 0.31%, to 3,045.61 and the Nasdaq Composite added 33.00 points, or 0.35%, to 9,445.36.

Asian markets were subdued after US Secretary of State Mike Pompeo warned Hong Kong no longer warranted special treatment under US law.

MSCI’s broadest index of Asia-Pacific shares outside Japan ended flat. Shares in Hong Kong ended down 0.7% as Chinese shares managed to close in positive territory, while Japan’s Nikkei jumped 2.3%.

Euro zone bond yields were stable, with Italian borrowing costs - a key European confidence indicator - edging toward new eight-week lows. Safe-haven German bonds sold off slightly.

US government debt yields rose as stocks gained, reducing demand for safe-haven bonds, before the Treasury is due to sell a record $38 billion of seven-year notes.

Benchmark 10-year notes rose 1.1 basis points to yield 0.6868%.

US crude oil, gasoline and distillate stocks all rose, data from industry group the American Petroleum Institute showed on Wednesday, putting a damper on a recent rally.

US crude fell 0.98% to $32.49 per barrel and Brent was at $34.38, down 1.04%.

Saudi Arabia and some other Opec oil producers are considering extending record high output cuts until the end of 2020 but have yet to win support from Russia, according to Opec+ and Russian industry sources.

Oil futures steadied on Thursday as the market awaited confirmation of industry data that showed a surprise increase in US crude stocks, which offset hopes for a demand recovery as coronavirus lockdowns ease.

After tumbling on Wednesday, Brent crude futures were down 0.06%, or 2 cents, at $34.72 a barrel at 1311 GMT after dropping by more than $1 to $33.62 in early trade.

US West Texas Intermediate (WTI) crude futures were down 0.3%, or 10 cents, at $32.71. US futures earlier slipped as much as 5% to a low of $31.14.

“All in all oil is pretty much flat after the price correction yesterday. The market opened lower after the shock API numbers, but it is now treading water until EIA statistics are released,” said Harry Tchilinguirian, head of commodity research at BNP Paribas.

Data from industry group API showed US crude stocks rose 8.7 million barrels in the week to May 22, against analyst expectations for a 1.9 million-barrel draw.

Also weighing on prices was uncertainty about Russia’s commitment to continuing deep output cuts ahead of a June 9 meeting of the Organization of the Petroleum Exporting Countries and its allies, a grouping dubbed Opec+.

Saudi Arabia and some other Opec oil producers are considering extending record high output cuts until the end of 2020 but have yet to win support from Russia, according to Opec+ and Russian industry sources.

With WTI holding above $30 a barrel, Opec+ will be watching to see whether US shale oil producers, who have breakeven prices in the high $20 to low $30 range, step up production, said National Australia Bank’s head of commodity research, Lachlan Shaw.

Reuters