Is the worst of the global recession over? Investors think so

Asian stocks rallied for their ninth straight day on Tuesday and oil prices jumped as the lifting of coronavirus lockdowns in many countries fed investor hopes of a relatively quick global economic recovery.

Markets have been particularly encouraged by the US’s jobs report for May – published last week – that showed a surprise fall in the unemployment rate, sending Wall Street indices surging, with the Nasdaq hitting a record close on Monday.

Global financial markets were battered in March as investors fretted over the extent of both the short and longer-term damage to the world economy from the coronavirus pandemic. But most indices are now back to pre-COVID-19 levels.

MSCI’s broadest index of Asia-Pacific shares outside of Japan rose for a ninth straight session for its longest winning streak since early 2018. It was last up 0.76 percent at a three-month peak.

Australia’s S&P/ASX 200 jumped 2.5 percent while Chinese shares started on a firm footing with the blue-chip CSI300 index rising 0.4 percent. Hong Kong’s Hang Seng index climbed 1.2 percent.

Japan’s Nikkei bucked the trend with a 0.5 percent fall.

“The good news is that this shows central banks’ effort to stabilise the market have worked,” said Tai Hui, chief Asia market strategist at JP Morgan Asset Management.

“The current risk rally is driven by investors’ belief that the worst of this recession is behind us, which we agree with. Yet, investors need to be mindful of the potential risks ahead.”

Tai said the “road to recovery” was still long, while the threat of a second wave of coronavirus infections cannot be ruled out yet.

Fears of renewed trade tensions between the US and China and the second-round impact from higher unemployment and bankruptcies worldwide also hung heavy on the outlook.

For now, though, investors are taking a glass-half-full view on the global economy.

Financial, automotive, retail-oriented and energy shares – the stocks most beaten-down since the pandemic slammed markets – have been leading world equity indices higher recently.

Overnight on Wall Street, the Dow rose 1.7 percent, the S&P 500 gained 1.2 percent, and the Nasdaq Composite added 1.13 percent.

US stocks were also bolstered by a move by the Federal Reserve to ease the terms of its “Main Street” lending program to encourage more businesses and banks to participate.

Investors are now seeking further clarity on US monetary policy after the Fed’s two-day policy meeting ends on Wednesday.

Oil: As good as it gets?

In commodities, benchmark crude rose $1.28 a barrel to $38.68 a barrel, while Brent added $1.13 to $41.25. Expectations that US crude stockpiles are continuing to fall were offset by a decision by Saudi Arabia to cease extra voluntary production cuts by the end of this month.

Saudi Arabia said the additional supply cuts, which amounted to about 1.2 million barrels a day and included contributions from allies in the Persian Gulf, would only remain in place until the end of June.

Oil has rebounded since dropping below zero in April as cuts reduced a global glut and demand recovered following the easing of lockdown restrictions in some countries. However, a return to pre-virus levels of consumption is expected to be slow and uneven, with Goldman Sachs Group Inc turning bearish in the short term due to poor returns from refining.

The decision over the weekend by the OPEC+ coalition – comprising the Organization of Petroleum Exporting Countries and allies such as Russia – to extend its historic supply cuts by an extra month was already reflected in current prices, and consumption forecasts are running ahead of a more gradual and still highly uncertain recovery, Goldman said in a note to clients.

Another factor likely to put a lid on any gains in oil prices is the inability of the cartel to keep some members from producing more than they have agreed to under the terms of the output reduction deal, analysts said.

“The realisation that OPEC+ has no way to enforce better compliance from those members who are lagging (never mind making them compensate for poor compliance), along with confirmation from Saudi Arabia that their additional voluntary cuts of [one million barrels per day] will only be for this month, was enough to put downward pressure on the market,” commodities strategists Warren Patterson and Wenyu Yao at Dutch bank ING said in a research note sent to Al Jazeera.

In currency markets, the risk-sensitive Australian dollar hit a five-month top of $0.7043 after eight straight days of gains, but has encountered some selling pressure at those heady levels.

Its New Zealand counterpart jumped to a four-month high.

The safe-haven Japanese yen also nudged up 0.2 percent at 108.15, while the euro was off a touch at $1.1285.

Gold prices were up after a steep decline, boosted by hopes of a dovish monetary policy outlook from the Fed. Spot gold was last up 0.1 percent at 1,697.1.