Asia stocks rally, Europe and US likely to follow

The US continues to grapple with the economic fallout of the COVID-19 pandemic, as the lockdown has led to a sharp contraction in economic activity. Unemployment numbers have soared, manufacturing and services are showing contraction and GDP contracted by 5.0% in Q2. Despite the severe conditions, the equity markets continue to head higher.

Wall Street finished the second quarter of 2020 with a bang, with all three major indices rising overnight. That, combined with generally positive regional PMI data today, has supported Asian stock markets this morning. The Hong Kong stock market is closed today, perhaps fortunately so after the enacting of the new security law, removing the only real spoiler to Asia’s bullish price action.

The S&P 500 rose 1.54% overnight, with the Nasdaq jumping 1.87% and the Dow Jones rising 1.70%. Quarter end portfolio rebalancing flows by the institutional space leant support, even as COVID-19 appears to be spinning out of control across the US Sunbelt states. That will surely temper the optimism of even the most ardent V-shaped recovery FOMO gnome eventually.

All the talk of near-record quarters for stocks in Q2 is smoke and mirrors, recovering as they did, from the mid-March cremation lows. The critical level to watch is 3000 on the S&P 500. A weekly close below this level may well be the signal that a material pullback is upon markets.

In Asia, only Japan is lower after a poor Tankan release earlier today. The Nikkei 225 is down 0.40 percent. Elsewhere, the picture is modestly positive. The Kospi is up 0.70%, with China’s Shanghai Composite and CSI 300 0.80% higher. The Straits Times is 0.80% higher, although Jakarta and Kuala Lumpur are flat as trading starts there.

Australia’s ASX 200 and All Ordinaries are modestly higher by 0.50 percent. Exuberance has been tempered by the continuing rise in COVID-19 cases in Victoria, with Air New Zealand temporarily suspending Melbourne services.

For now, the tentative rally in equities is set to continue across Europe and possibly the US today, supported by PMI data that should continue to show positives signs of a deep freeze comeback.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Jeffrey Halley

Jeffrey Halley

Senior Market Analyst - Asia Pacific
With more than 30 years of FX experience – from spot/margin trading and NDFs through to currency options and futures – Jeffrey Halley is OANDA’s senior market analyst for Asia Pacific, responsible for providing timely and relevant macro analysis covering a wide range of asset classes. He has previously worked with leading institutions such as Saxo Capital Markets, DynexCorp Currency Portfolio Management, IG, IFX, Fimat Internationale Banque, HSBC and Barclays. A highly sought-after analyst, Jeffrey has appeared on a wide range of global news channels including Bloomberg, BBC, Reuters, CNBC, MSN, Sky TV, Channel News Asia and the New York Times. He was born in New Zealand and holds an MBA from the Cass Business School.
Jeffrey Halley
Jeffrey Halley

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