US oil prices rose for a fifth straight day and global stocks pushed higher as the cautious reopening of economies helped buoy markets.
Countries such as Spain, Italy and India have tentatively eased lockdown measures this week, allowing some businesses to reopen. California, the most populous US state, is set to relax its restrictions from Friday.
Hopes that lockdown exits will boost crude demand have underpinned a rebound in the oil prices. West Texas Intermediate, the US marker, was up 10 per cent at $22.42 a barrel in mid-morning trading in Europe on Tuesday, leaving it up more than 80 per cent during the past week. Brent crude, the international benchmark, rose 7.1 per cent to $29.13.
“The reopening of economies has injected a degree of cautious optimism back into an oil market that plunged to historic lows only weeks ago,” said Michael Tran, commodity strategist at RBC Capital Markets, who cited data suggesting US vehicle traffic levels had already rebounded off their lows.
But with oil demand down by as much as a third and storage capacity continuing to fill, some analysts are still concerned that crude prices may yet slip back.
“Many market participants believe there is light at the end of the tunnel,” said Giovanni Staunovo, an analyst at Swiss bank UBS. “But while the inflection point appears near, we would describe the current environment as the darkest hour just before the dawn. With oil inventories still increasing, crude oil prices remain vulnerable to renewed setbacks.”
The uplift in market sentiment spilled over into equities, with European stocks following Asian counterparts higher. The Stoxx Europe 600 was up 1.3 per cent in morning trade, while London’s FTSE 100 and Frankfurt’s Dax gained 1 per cent and 1.3 per cent, respectively.
Elsewhere in Europe, the euro and Bunds sold off after Germany’s constitutional court called on the European Central Bank to justify its bond-buying programme. While the court found the ECB’s purchases of public sector debt were legal, it asked that it review whether they were “proportionate” in pursuit of its monetary policy objective.
The single currency fell 0.7 per cent against the dollar to $1.0832, while the yield on German 10-year government bonds rose 0.02 percentage points to minus 0.541 per cent. Yields rise as bond prices fall.
Asian equities made modest gains overnight, with markets in Japan, China and South Korea closed for public holidays. Hong Kong’s benchmark Hang Seng closed up 1.1 per cent while Australia’s S&P/ASX 200 rose 1.6 per cent.
Futures markets pointed to gains of 0.8 per cent for the S&P 500 when trading begins on Wall Street later. On Monday, US stocks staged a late-session comeback, despite US-China trade tension weighing on sentiment and a large sell-off in airline shares.