European stocks continued to climb on Thursday, optimism about the reopening and rapid recovery of economies outweighed fears of a second wave of coronavirus infections and a further escalation in US-China tensions.
London’s FTSE 100 rose 0.6% and the Xetra Dax in Frankfurt rose 0.8% in morning trading on Thursday, while the continent-wide Stoxx Europe 600 index increased by more than 1%.
On Wednesday, Brussels’s proposal to borrow € 750 billion for its stimulus fund raised hopes for a faster economic rebound in Europe as governments gradually lift lock restrictions across the continent.
Analysts warn EU plan will involve tough negotiations, but Jacob Nell, economist at Morgan Stanley, said the move “greatly mitigates the risk of recession in the south and increases the chances of a synchronized recovery across Europe next year “.
The rebound in business and consumer confidence after near record lows in May in the European Commission’s monthly survey added to investor confidence that the worst economic coronavirus crisis was over.
Goldman Sachs economists have said that the EU stimulus fund, along with the purchase of riskier assets by the European Central Bank, will contain sovereign risk in the euro area in the short term. “We believe global economic activity has now bottomed out and we expect a strong sequential recovery in advanced economies in the second half of 2020, assuming that infection rates do not accelerate sharply as economies continue to reopen, “said the bank.
Investors continue to closely monitor any new group of Covid-19 outbreaks. South Korea reported 79 new cases on Thursday, the largest increase in daily cases in more than two months, prompting the government to tighten quarantine measures for two weeks in the metropolitan area surrounding the capital, Seoul.
Stock market rallies in Europe and the United States since March have so far fought fears of a second wave of infections.
On Wednesday, the S&P 500 benchmark closed 1.5% higher, building on the rally that has been going on for two months. Futures markets reported modest gains of 0.1% when Wall Street opened later today.
But the Hong Kong Hang Seng index reversed the trend, falling 0.7% on Thursday, as Washington took the first steps to potentially remove the city’s special trade status.
Overnight, Mike Pompeo, US Secretary of State, said, “No reasonable person can say today that Hong Kong retains a high degree of autonomy from China, given the facts on the ground. “
The statement is the US government’s most serious response to Beijing’s decision to impose a new national security law on Hong Kong, which has raised concerns about the territory’s future as a financial hub.
The Chinese National People’s Congress on Thursday approved the proposal to introduce the law. The bill sparked street protests in the semi-autonomous territory.
Elsewhere in the region, the Chinese CSI 300 index of stocks listed in Shanghai and Shenzhen rose 0.3% on Thursday. The onshore renminbi strengthened 0.2% to 7.1546 Rmb the dollar after the central bank of China fixed the currency trading range higher than analysts had forecast.
The less regulated offshore renminbi remained stable but remained just below the record low of 7.765 Rmb hit last September when the US-China trade tensions reached their peak.
Japan’s Topix index rose 1.8%, while Australia’s S & P / ASX 200 rose 1.3%.
Analysts have warned that it may only be a matter of time before the growing trade tensions between the United States and China are felt in the markets even more. “It’s hard not to see Mike Pompeo’s remarks about Hong Kong overnight as anything other than a smooth restart of US political hostilities against China, which will likely see trade tensions escalate and reprisals tit-to-tat start, ”said Robert Carnell, Asia-Pacific research manager at ING. “Personally, I struggle with the calm of the markets in the face of this. “
Oil prices have plummeted after reports that Russia plans to ease supply cuts starting in July. Crude oil Brent, the international benchmark, fell 1% to $ 34.38 a barrel and West Texas Intermediate, the American marker, fell 1.4% to $ 32.34 a barrel.