Stocks jump on strong US jobs data, but dimming outlook dents oil

Asian shares rallied to a four-month high on Friday on robust United States jobs data and a brisk pickup in Chinese service sector activity, but a surge in coronavirus cases in the US kept a lid on stronger gains and oil prices fell.

MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.66 percent, reaching the highest level since late February, while Japan’s Nikkei rose 0.40 percent.

The pan-European STOXX 600 index rose 0.2 percent to hover near its strongest level in three weeks

Mainland Chinese shares, which were among the best performers over the past month, extended gains, with the Shanghai Composite index hitting a high last seen in April 2019.

China’s services sector expanded at the fastest pace in more than 10 years in June, the Caixin/Markit services Purchasing Managers’ Index (PMI) showed, as the easing of coronavirus-related lockdown measures revived consumer demand.

Factory surveys earlier in the week had also shown momentum in China is building, though companies are still shedding jobs.

“Recovery in China’s domestic demand is accelerating, even though the external demand is still weak. Thus investors are shifting to domestic-demand oriented sectors,” said Wang Shenshen, senior strategist at Mizuho Securities in Tokyo.

Brokerage shares were leading the gains in China on hopes of further capital market reform, a move that is in part fuelled, ironically, by Washington’s attempt to restrict Chinese firms’ access to Wall Street.

For the US, S&P 500 futures were down 0.2 percent but volumes were lower than usual due to a markets holiday on Friday for Independence Day.

Jobs surprise, but caveats remain

The country’s nonfarm payrolls surged by 4.8 million jobs in June, above the average forecast of three million jobs, thanks to a recovery in the hard-hit hospitality sectors.

But economists noted there were caveats to the upbeat headline figures.

Even after two months of recovery from May, the US economy has regained slightly more than a third of its historic plunge of 20.787 million jobs in April.

A separate report on jobless claims, the most timely data on employment, showed the number of people receiving benefits after an initial week of aid actually rose 59,000 to 19.29 million in the week ending June 20.

The recovery also faces more headwinds as a surge of new coronavirus infections prompts US states to delay, and in some cases reverse, plans to let stores reopen and activities resume.

More than three dozen US states saw increases in COVID-19 cases, with cases in Florida spiking above 10,000.

On the other hand, expanded unemployment benefits to support those who lost their jobs due to the pandemic are due to expire at the end of this month, though many investors think Congress could extend the measure.

“Back to pre-pandemic [job levels], in my view, will be a matter of years,” Danielle DiMartino Booth, CEO and chief strategist of Quill Intelligence in Dallas, Texas. “With luck, it will be two years but that is likely optimistic given the number of permanent closures we’ve learned of.”

Oil’s slow recovery

The rise in coronavirus cases also raised questions about the strength of the recovery in demand for oil in the US, the world’s largest consumer of crude.

Brent crude fell 0.65 percent to $42.86 a barrel while US crude dropped 0.66 percent to $40.38 a barrel.

“The recovery in demand remains gradual, with recent [Energy Information Administration] data showing that in the US, 4-week average implied product demand is still 14 percent below the 5-year average,” Paul Bloxham, chief economist for Australia, New Zealand and global commodities at HSBC, said in a research note sent to Al Jazeera.

China-US diplomatic tensions have also cast a shadow.

The US State Department warned top US companies including Walmart, Apple and Amazon.com Inc over risks faced from maintaining supply chains associated with human rights abuses in China’s western Xinjiang province.

“China will keep a hard line stance towards the next year when the Chinese Communist Party will celebrate its 100th anniversary since its founding,” said Akira Takei, a bond fund manager at Asset Management One.

“Global companies can no longer have supply chains in China as they used to.”

The Senate passed legislation on Thursday to penalise banks doing business with Chinese officials who implement Beijing’s draconian new national security law on Hong Kong, sending it to the White House for President Donald Trump’s signature.

The bill passed the Senate by unanimous consent, a day after the House of Representatives also passed it without opposition, a rare example of overwhelming bipartisan support, reflecting concern in Washington over the erosion of the autonomy that had allowed the former British colony to thrive as China’s freest city and an international financial centre.

In foreign exchange, major currencies were little changed, with the euro at $1.1245 and the yen changing hands at 107.52 per dollar.