Stocks rally as reopening, easing China-US tensions beat bad data
Oil markets plunged after Russia and Saudi Arabia fell out over oil production (Photo: AFP / YASSER AL-ZAYYAT)

Moves to ease lockdown measures and reopen economies around the world fired equity markets Friday as investors looked past a string of depressing data suggesting the planet is heading for its worst downturn since the Great Depression.

Some of the world's biggest economies are in contraction, factory production has collapsed, hundreds of millions of jobs have been destroyed and numerous companies have gone to the wall since the pandemic struck earlier in the year.

And some observers are warning of more pain to come.

But traders remain buoyed as mind-boggling stimulus and central bank backstopping measures along with easing China-US tensions have provided much-needed reassurance.

That combined with signs of a slowdown in the disease in some of the worst-hit nations and governments slowly lifting restrictions that have kept around half the planet under some form of lockdown has fueled a surge across world markets.

After crashing in the space of a few weeks, global equities are up about 20 percent since their trough in March, and analysts say the gains could continue.

JP Morgan Chase analysts wrote in a note: "While the collapse in economic activity is historic, so too is the global policy response to cushion the impact and support a recovery.

"We expect risky assets to continue to recover as economies reopen." They did, however, expect gains to slow down.

Wall Street's three main indexes all rallied more than one percent, with the Nasdaq even running into positive territory for 2020, despite data showing new claims for US unemployment benefits hit 3.2 million last week, taking the total to 33.5 million.

And the sentiment seeped into Asia.

Tokyo soared 2.6 percent, while Hong Kong climbed one percent and Shanghai added 0.8 percent.

Mumbai piled on more than one percent, Seoul jumped 0.9 percent, while Sydney and Taipei both put on 0.5 percent. There were also gains in Wellington, Bangkok and Jakarta, though Singapore, Manila and Jakarta dipped.

In early trade, Paris was up 0.6 percent and Frankfurt rose one percent. London is closed for a holiday.

- 'Substantial relief' -

News that China and the US had committed to implementing a partial trade deal that was signed off in January and brought a pause to their debilitating trade war also provided much-needed support to markets.

China's Vice Premier Liu He, who had led Beijing's negotiations, held a call on Friday morning with US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin, according to Beijing.

The confirmation will ease concerns about a renewal of their standoff after President Donald Trump hit out at China's handling of the pandemic and warned of fresh tariffs.

"That will be of substantial relief to markets, as the last thing the world economy needed right now, was an escalation in hostilities on that front," said OANDA's Jeffrey Halley.

The easing of lockdowns has provided a boost to beaten-down oil markets as traders bet on a pick-up in demand and easing of a supply glut that sent West Texas Intermediate (WTI) into negative territory last month.

Both main contracts surged -- WTI put on more than six percent at one point -- and are on course to end the week with gains for the second time in succession.

"People are getting back in cars to commute or merely to get out of the house, which is excellent for gasoline demand as that is providing the first phase in bounce to the oil price recovery," said Stephen Innes of AxiCorp.

"But to sustain this rally, you need more than people driving around the block; you need the heartlands industrial engines firing on all cylinders and planes taking to the air."

Eyes are now on Friday's release of US non-farm payrolls, which will provide the most comprehensive accounting of the impact of the crisis on the world's top economy.

In the face of the widespread gains, David Hunt of PGIM gave a sobering analysis.

"We believe the equity markets are substantially overvalued relative to what we think is going on in the real economy," he told Bloomberg TV.

"In order to believe today's levels, you really need to believe we are going to have a sharp V-shaped recovery in earnings, starting in the third and fourth quarters of this year and certainly for 2021. We don't think that is going to happen."

- Key figures around 0810 GMT -

Tokyo - Nikkei 225: UP 2.6 percent at 20,179.09 (close)

Hong Kong - Hang Seng: UP 1.0 percent at 24,230.17 (close)

Shanghai - Composite: UP 0.8 percent at 2,895.34 (close)

London - FTSE 100: Closed for a holiday

West Texas Intermediate: UP 5.1 percent at $24.75 per barrel

Brent North Sea crude: UP 3.1 percent at $30.38 per barrel

Euro/dollar: DOWN at $1.0828 from $1.0829 at 2050 GMT

Dollar/yen: UP at 106.41 yen from 106.26 yen

Pound/dollar: UP at $1.2379 from $1.2360

Euro/pound: DOWN at 87.46 pence from 87.60 pence

New York - Dow: UP 0.9 percent at 23,875.89 (close)