US stocks were set to rise when trading begins on Wall Street, taking their cue from markets in Asia and Europe, as investors looked past a historic contraction in China’s economy and pinned their hopes on the emergence of a potential coronavirus treatment.
Futures trade suggested gains of 2.6 per cent for the S&P 500 when markets open in New York, extending a sharp rebound that has seen the benchmark index bounce back almost 30 per cent from its mid-March lows.
The positive sentiment on Wall Street comes on the heels of an upbeat morning of trading in Europe after a report suggested a drug developed by Gilead had shown positive results in a clinical trial, giving investors hope that a treatment could ease the pandemic and open up the global economy.
Europe’s Stoxx 600 was up 3 per cent in early afternoon trade, with gains of 3.5 per cent for Frankfurt’s Dax 30, 3.9 per cent for Paris’s Cac 40 and 3.1 per cent for London’s FTSE 100.
“Investors appear to be leaning on the encouraging news from the medical publication Stat, that a group of patients being treated in Chicago with a trial of Gilead’s drug remdesivir were ‘seeing rapid recoveries in fever and respiratory symptoms’,” said Jim Reid at Deutsche Bank.
However, analysts warned against overreacting to the reports ahead of seeing the full data.
“We appreciate that the broader market is in a risk-on and glass-half-full environment and investors are looking for a good story,” said Michael Yee at Jefferies.
The session in Asia was also broadly positive despite official Chinese data showing that the world’s second-biggest economy shrank by 6.8 per cent year on year in the first quarter due to disruption caused by coronavirus-induced lockdowns, marking the first decline in gross domestic product since 1976.
On Wall Street overnight, the S&P 500 closed 0.6 per cent higher — leaving it up 27 per cent since its nadir last month — even as economic data revealed another steep jump in US unemployment claims.
The rally in global stock markets over the past month has seen them temper their losses after plummeting in late February and early March as major economies went into lockdown. The S&P 500 is now just 15 per cent lower since the beginning of the year, while the Nasdaq 100, which tracks the biggest companies on the Nasdaq Composite, on Thursday flipped into positive territory for the year, after adding 30 per cent in the four weeks.
Investors have taken comfort from indications that lockdown measures appear to be working and have welcomed sweeping monetary and fiscal intervention. But analysts have warned the bounceback may struggle to sustain itself.
“The market may have run ahead of itself,” said analysts at Bank of America Global Research.
“The macro support measures, in the best case, can only keep the economy alive during the ‘induced coma’. We still don’t know how much longer the lockdown will last, how long the exit plans will take and what lockdown measures will remain even when economies ‘open up’,” the analysts said.
Meanwhile, US crude oil prices dropped to another 18-year low under $18 a barrel, with energy markets still under pressure from a record glut created by the pandemic, despite a landmark deal to cut global supply.
West Texas Intermediate was trading at $17.89, down 10 per cent on the day as traders bet oil storage will rapidly fill up globally. Brent crude, the international benchmark, was steady at $27.92 a barrel, but it has lost 10 per cent this week.
In fixed income, the 10-year US Treasury yield was stable at 0.623 per cent.
Additional reporting by David Sheppard in London