Stimulus effects: stocks reach for records as second half starts strong
Europe’s financial markets made a solid start to the second half of the year on Thursday, with stocks brushing off a rapid re-acceleration in the region’s coronavirus cases and both the dollar and oil extending their strong first half rallies, Reuters reports.
Early 1% gains in London, Frankfurt, Paris and Milan meant the pan-European STOXX 600 was close to joining Wall Street back at record highs. In an Asia session thinned by a holiday in Hong Kong, Japan’s Nikkei fell 0.3% and the yen hit a 15-month low at 111.18 per dollar as the US currency continued its steady grind higher.
There was little sign of oil prices easing off, either. Brent was up nearly 1% at just over $75 a barrel after a roaring 45% first-half rise had scored one its best starts to a year on record. Euro zone government bond yields inched also inched up as the latest economic data showed the 19-country bloc’s manufacturing sector expanded at a record pace last month, while firms were seeing the steepest rise in raw materials costs in well over two decades.
‘Euro zone manufacturing continued to grow at a rate unbeaten in almost 24 years of survey history in June as demand surged with the further relaxation of covid-19 containment measures,’ said Chris Williamson, chief business economist at IHS Markit.
‘However, the sheer speed of the recent upsurge in demand has led to a sellers’ market as capacity and transportation constraints limit the availability of inputs to factories, which have in turn driven industrial prices higher at a rate not previously witnessed by the survey.’
Germany’s benchmark 10-year Bund yield was up one basis point on the day, at -0.19%. French, Spanish and Italian 10-year yields were up by a similar amount . Most major economies have seen their government bond yields, which drive borrowing costs in their economies, rise sharply this year on bets that central banks will slow stimulus as a global recovery pushes up inflation. Due to a shortage of shipping containers and supply chains hugely affected by the pandemic, the euro zone data’s input prices index soared to 88.5 from 87.1 — by far the highest in the survey’s history. The bloc’s inflation had dipped to 1.9% last month, official data on Wednesday had shown.
‘The virus is still playing a role … although it’s difficult to see much direction in anything at the moment,’ ING economist Rob Carnell said on the phone from Singapore.
‘There’s a broad sense that the dollar isn’t such a bad unit to be holding,’ he said, as traders also awaited US jobs data due Friday for clues on the Federal Reserve’s next move.
‘Everyone is a little bit jittery.’