Government stimulus plans fuel further gains in global stocks

Global equities have gained further momentum as investors take heart from the easing of lockdowns and governments prepare another barrage of spending to prop up a sputtering global economy.

Wall Street’s S&P 500 opened 1 per cent higher on Wednesday, adding to gains of more than 1 per cent in the previous session. Major continental European markets including those in Paris and Frankfurt roared about 2 per cent higher, while London’s FTSE 100 rose 1.4 per cent.

Investors have been cheered in recent weeks by a deluge of fiscal and monetary stimulus measures from countries around the world.

Brussels plans to seek the power to borrow up to €750bn in a vast spending programme to pump money into the bloc’s worst-hit economies, the Financial Times reported on Wednesday. Japan’s cabinet also approved on Wednesday a $1.1tn fiscal stimulus plan, which comes on top of another package already in place.

The proposed spending by the EU and Japan are just the latest efforts by global governments and central banks to prop up economies that have been dealt a serious blow by coronavirus.

Analysts said the cautious easing of lockdowns across major economies and the absence of a large much-feared “second wave” of infections has also boosted traders’ appetite for risky assets.

Travel and leisure stocks, which have been among the worst hit since the coronavirus crisis began, posted big gains for the second day. Shares in Tui, the tour operator, have surged more than 77 per cent this week, while cinema chain Cineworld has soared 40 per cent. Meanwhile in the US, Alaska Air, Royal Caribbean, American Airlines and Carnival led the way higher, with gains of around 10 per cent each on Wednesday.

Shares in European banks also jumped on Wednesday, with French lenders Société Générale and BNP Paribas up about 8 per cent, while the UK’s Royal Bank of Scotland gained 8.5 per cent and Germany’s Commerzbank climbed 7 per cent. The sector has been hit hard this year amid concerns about how low rates will affect banks’ profitability and expectations for a jolt in loans turning sour.

The government debt of Italy and Spain, among the hardest hit European countries, rallied alongside the euro on Wednesday.

Still, several analysts and investors said they remained wary, given signs of a fresh bout of tensions between Washington and Beijing.

China’s currency fell by the most in three weeks in the wake of the country’s plans to impose a sweeping national security law on Hong Kong. The renminbi weakened 0.46 per cent on Wednesday to Rmb7.17 to the US dollar, its lowest level since September 2019.

Chart showing the falling renminbi

Hong Kong’s Hang Seng index slipped 0.4 per cent as demonstrators and riot police clashed. Protests that had been kept at bay by the coronavirus pandemic re-erupted following Beijing’s move and a separate law that could result in prison sentences for insulting China’s national anthem.

Beijing’s actions have rankled President Donald Trump and US officials. Mr Trump told reporters on Tuesday that he was “doing something now” on the Hong Kong issue and planned to provide further details in the “next couple of days”.

Investors in Hong Kong, a global financial hub, are concerned that Washington could retaliate by removing its special trading status with the US. Credit Suisse’s chief investment office warned that “volatility could continue as US-China tensions intensify”.

Lauri Halikka, a bond and currency strategist at Swedish bank SEB, said such sanctions would “most likely lead to retaliation from China and harm US-China relations even further . . . risking the progress made in the trade talks last year”.

Oil prices lost some ground after rising on Tuesday following reports that Russia’s energy minister had met the country’s petroleum producers to discuss deeper production cuts in the second half of the year.

Brent crude, the international benchmark, fell 1.5 per cent to $35.63 a barrel, while West Texas Intermediate, the US marker, dropped 1 per cent to $34.01. The yield on the US 10-year Treasury bond slipped 0.008 percentage point to 0.69 per cent, signalling a slight rise in price.