Asian stocks set to extend gains as stimulus fans recovery hopes

NEW YORK (Reuters) – Stronger appetite for riskier assets is set to lift Asian equities on Thursday, as government stimulus expectations support investor confidence in an economic recovery from the coronavirus.

E-mini futures for the S&P 500 were up 0.05% and Australian S&P/ASX 200 futures rose 1.23% in early trading. Japan’s Nikkei futures rose 1.1%.

The safe-have U.S. dollar continued to fall.

Markets for risk assets have been on a tear, carrying major stock market indexes to within sight of pre-pandemic, all-time highs.

MSCI’s gauge of stocks across the globe moved up for the seventh consecutive trading day on Wednesday with a gain of 1.68%.

The rise came as the Nasdaq Composite, S&P 500 and the Dow Jones Industrial Average continued their rise from March cornonavirus-lockdown-lows to come within 2%, 8% and 11%, respectively, of overtaking all-time closing highs registered in February.

The dollar index fell 0.24% against a basket of other currencies early on Thursday, having hit an 11-week low on Wednesday. The euro rose as high as $1.1251, a level not seen since March 12.

“Liquidity provision by central banks – and expectations that more is coming – is helping to support the recent drive in risk markets,” ANZ Research senior economist Liz Kendall and strategist David Croy, said in a note early on Thursday.

But the analysts cautioned asset prices would need a recovery in the global economy to sustain gains.

On Wednesday, the Dow rose 2.05%, the S&P 500 gained 1.36% and the Nasdaq Composite added 0.78%.

The pan-European STOXX 600 closed at its highest since March 6. European markets have performed strongly so far this week as several countries eased strict lockdown measures.

The move to riskier assets continued to take down prices for U.S. Treasuries. The yield on the benchmark 10-year reached 0.7333% on Wednesday, up from 0.667% on Tuesday.

A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, reached 55 basis points on Wednesday, the steepest level since mid-March. A steepening curve often points to a stronger economy.

Governments around the world have gradually started to lift tough lockdown measures imposed to contain the coronavirus which has infected nearly 6.4 million people and killed over 379,000.

Markets await Friday’s U.S. Labor Department May jobs report, which is expected to show unemployment soaring to a post-World War Two high of nearly 20% from 14.7% in April.

On Wednesday, a report showed that U.S. private payrolls fell less than expected in May, suggesting layoffs were abating as businesses reopen.

Investors are also focused on whether the European Central Bank will increase the size of its 750 billion euro ($669 billion) Pandemic Emergency Purchase Programme, when it meets on Thursday.

Oil prices rose again on Wednesday, briefly trading above $40 a barrel, the highest since March, and reflecting increased demand.

Brent crude futures for August settled up 22 cents, or 0.6%, at $39.79 a barrel. The session high of $40.53 was the highest since March 6. West Texas Intermediate (WTI) crude for July rose 48 cents, to $37.29 a barrel.

Spot gold added 0.1% to $1,698.39 an ounce early on Thursday after losing 1.6 % on Wednesday.

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Asian stocks set to gain as stimulus hopes support risk appetite

NEW YORK (Reuters) – Asian stocks were poised to follow the global rally on Wednesday as hopes of more government stimulus bolstered riskier assets and overshadowed a host of other worries from the coronavirus to Hong Kong and growing U.S. civil unrest.

E-mini futures for the S&P 500 were up 0.3% and Japan’s Nikkei 225 futures were 1.6% higher in Asia on Wednesday morning, while Australian S&P/ASX 200 futures rose 0.58% in early trading.

That comes after stocks in the United States, Europe and emerging markets hit their highest levels on Tuesday since early March and as bidding for riskier currencies pushed the dollar toward three-month lows and oil neared three-week highs.

From its March 23 low, MSCI’s gauge of stocks across the globe was up 35%. Despite lockdowns to control the COVID-19 pandemic, the global index is down year-to-date only about 8%.

U.S. stocks indexes rose about 1% even as the worst civil unrest in decades left dozens of cities under curfews following protests over the death of an unarmed black man in police custody.

With its gains, the U.S. tech-heavy Nasdaq Composite is down less than 3% from its pre-pandemic record highs.

“The good times continue to roll in risk markets,” Mazen Issa, senior FX strategist at TD Securities, said in a report. “As intense as the rally has been, this is likely set to continue as the breadth of the equity rally has now spread outside the U.S.”

The U.S. Treasury yield curve steepened, reflecting the sale of more government debt to finance massive stimulus efforts. The gap between yields on 5- and 30-year Treasuries reached 116 basis points on Tuesday, its highest since early 2017.

“A steepening curve does give equities a bit of a kick,” said Kim Rupert, senior economist for Action Economics.

Expectations for additional support from the European Central Bank and the German government boosted European stocks and the euro on Tuesday.

Volkswagen (VOWG_p.DE), Daimler and BMW, for example, gained more than 5% on confidence that Germany’s proposed 5 billion euro ($5.6 billion) stimulus package will boost car sales.

The ECB is expected to ramp up stimulative bond purchases when it meets on Thursday.

Oil prices climbed more than 3%, or $1 a barrel, on Tuesday on renewed U.S. demand for gasoline and hopes that major crude producers will agree this week to extend output cuts. U.S. West Texas Intermediate crude (WTI) settled at $36.81 and Brent crude settled at $39.57 a barrel.

Gold retreated 1% on Tuesday amid the broader optimism.

U.S. gold futures settled down 0.9% at $1,734.

Gold is still up more than 18% from a low of $1,450.98 in March because of the economic damage from the pandemic and the massive amounts of money coming from central banks.

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GLOBAL MARKETS-Asia stocks hit 3-month peaks, resilient to U.S. rioting

* Asian stock markets : tmsnrt.rs/2zpUAr4

* Asia markets swing higher, Nikkei at 3-mth peak

* China surveys show growth at home, subdued exports

* S&P 500 futures bounce, though riots add to economic woe

* Busy week sees ECB meet, U.S. payrolls report

By Wayne Cole

SYDNEY, June 1 (Reuters) – Asian shares pushed to three-month highs on Monday as progress on opening up economies helped offset jitters over riots in U.S. cities and unease over Washington’s power struggle with Beijing.

There was also relief that while President Donald Trump began the process of ending special U.S. treatment for Hong Kong to punish China, he left their trade deal intact.

“With specific and verifiable measures against China appearing to be weak, markets may draw hollow consolation that the U.S. is treading carefully,” said analysts at Mizuho in a note.

After a cautious start Asian markets were led higher by China on signs parts of the domestic economy were picking up. Hong Kong managed to rally 3.6%, while Chinese blue chips put on 2.4%.

An official business survey from China showed its factory activity grew at a slower pace in May but momentum in the services and construction sectors quickened.

A private survey showed a return to growth in May, though exports remained depressed.

That helped lift MSCI’s broadest index of Asia-Pacific shares outside Japan 2.1% to its highest since early March. Japan’s Nikkei added 0.7% to also reach a three-month peak.

E-Mini futures for the S&P 500 recovered to be flat, having been down 1% in early trade. EUROSTOXX 50 futures firmed 1.4% and FTSE futures 1.1%.

The resilience was notable given major U.S. cities were cleaning up streets strewn with broken glass and burned out cars as curfews failed to stop confrontations between activists and law enforcement.

The turmoil was a fresh setback for the economy which was only just emerging from a downturn akin to the Great Depression. Following poor data on spending and trade out on Friday, the Atlanta Federal Reserve estimated economic output could drop a staggering 51% annualised in the second quarter.

The May jobs report due out on Friday is forecast to show the unemployment rate surged to 19.8%, smashing April’s record 14.7%. Payrolls are expected to drop by 7.4 million, on top of the 20.5 million jobs lost the previous month.

YEARS, NOT MONTHS

“Current unemployment numbers go far beyond what has been experienced in any post-war recession,” wrote Barclays economist Christian Keller in a note.

“To the extent that some sectors may never return to pre-pandemic business-as-usual, labour faces a substantial challenge to reallocate workers,” he added. “Such a process could be a matter of years rather than months or quarters and in the meantime it would weigh on consumer demand.”

Bond investors suspect economies will need massive amounts of central bank support long after they reopen and that is keeping yields super low even as governments borrow much more.

Yields on U.S. 10-year notes were trading steady at 0.66% having recovered from a blip up to 0.74% last month when the market absorbed a tidal wave of new issuance.

The decline in U.S. yields has been a burden for the dollar, but the world’s reserve currency also tends to benefit from safe-haven status to limit the losses.

Early Monday, the dollar was 0.2% softer on a basket of peers at 98.018 having touched an 11-week low of 97.944 on Friday. It was also down on the yen at 107.52.

Much of the dollar’s recent decline has come against the euro which has been broadly boosted by plans for an EU stimulus package. The single currency was last up at $1.1131, after climbing 1.8% last week.

Markets are awaiting a meeting of the European Central Bank on Thursday where it is widely expected to raise its asset buying by around 500 billion euros to 1.25 trillion.

In commodity markets, gold added 0.9% to $1,1742 an ounce .

Oil prices initially eased on worries about U.S. demand, but found support from reports Russia had no objection to the next meeting of OPEC and its allies being brought forward to June 4 from the following week.

Brent crude futures were off 22 cents at $37.62 a barrel, while U.S. crude fell 19 cents to $35.30.

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Stocks rebound on relief at Trump's response to China over Hong Kong

NEW YORK (Reuters) – A gauge of global equities rebounded and crude oil rose on Friday after U.S. President Donald Trump ordered an end to Washington’s special treatment of Hong Kong, a move investors welcomed as unlikely to jeopardize a trade accord with China.

Trump said China broke its word over Hong Kong’s autonomy but did not mention any action that would undermine the Phase 1 trade deal that Washington and Beijing signed this year.

China’s parliament on Thursday passed new national security legislation for the city, casting doubt on its freedoms and its future as a finance hub.

U.S. stocks pared losses after Trump’s remarks and oil gained on hopes the dispute will not curb the economy’s nascent recovery from the coronavirus pandemic.

The Dow Jones Industrial Average .DJI fell 17.53 points, or 0.07%, to 25,383.11, the S&P 500 .SPX gained 14.58 points, or 0.48%, to 3,044.31 and the Nasdaq Composite .IXIC added 120.88 points, or 1.29%, to 9,489.87.[.N]

Investors were worried about a further deterioration in Sino-U.S. relations, which have soured considerably through the COVID-19 pandemic.

“The market was worried he was going to announce something substantial, something detrimental to the U.S. economy. Then as he spoke it became clear the actions being taken were not going to be as dramatic as originally feared,” said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance in Charlotte, North Carolina.

MSCI’s gauge of stocks across the globe .MIWD00000PUS gained 0.05%. In Europe, the pan-regional STOXX 600 index lost 1.44%.

Overnight in Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS fell 0.2%. Japan’s Nikkei .N225 retreated from a three-month high and the yen rose to a two-week high of 107.06 against the dollar, while bonds rose.

The Chinese yuan CNY= weakened in offshore trade. [CNY/]

Hong Kong’s Hang Seng index .HSI declined 0.8% and has lost about 3% in the two weeks since news of China’s security legislation broke. [.HK]

The yield on benchmark 10-year U.S. Treasury notes US10YT=RR fell 0.651 basis points to 0.6526%.

Federal Reserve Chair Jerome Powell on Friday reiterated the U.S. central bank’s promise to use its tools to mitigate economic fallout from the pandemic, even investors were turning their attention to the next phase of its response.

MAY RALLY

Massive amounts of government stimulus helped lift global stocks in May, offsetting reams of grim economic data.

Equity markets have had difficulty gauging the pandemic’s impact on earnings. But data on Friday showed a record drop in U.S. consumer spending for the second straight month and the highest-ever saving rate, reflecting high levels of economic uncertainty.

Investors have been buying stocks as lockdowns have been lifted or eased, betting on a speedy recovery.

The S&P 500 .SPX gained around 4% for the month, making it the best May since 2009.

MSCI’s All Country World Index .MIWD00000PUS, which tracks stocks across 49 countries, was up around 3.5% this week – its best weekly performance since April.

The euro EUR= climbed above its 200-day moving average for the first time since late March as the European Union’s 750 billion-euro coronavirus recovery fund fueled optimism. [FRX/] It was up 1.3% month-to-date against the greenback, last trading at $1.1097.

The dollar index =USD fell 0.178%against a basket of currencies.

U.S. gold futures GCv1 settled up 1.4% at $1,751.70 an ounce.

U.S. crude oil prices jumped more than 5%, while Brent, the international benchmark, edged higher. U.S. crude futures CLc1 rose $1.78 to settle at $35.49 a barrel, while Brent CLOc1 settled up 4 cents at $35.33 a barrel. [O/R]

Both contracts had their biggest monthly gains in years, supported by production cuts and optimism about demand recovery led by China.

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Stocks gain as German survey fuels optimism; dollar firm

LONDON (Reuters) – Stocks edged higher on Monday after a survey showed German business morale rebounded in May, boosting optimism around economic re-openings, although caution prompted the dollar to snap a rare losing streak.

MSCI’s gauge of world stocks gained 0.32%. The pan-European STOXX 600 index climbed 0.8%.

Lockdown measures introduced in mid-March have put the global economy on track for a recession this year. Only unprecedented stimulus by global central banks held up world markets in recent weeks.

With nervous investors wary of adding to their equity holdings over concerns on what a post-lockdown world would look like, Germany’s Ifo institute survey for May gave some relief.

Its business climate index rose to 79.5 from a downwardly revised 74.2 in April, higher than a Reuters poll had forecast, and fueling optimism about the outlook of Europe’s biggest economy after a drop in the first quarter

“Today’s Ifo index echoes more real-time signals that economic and social activity has started to pick up significantly since the first lifting of the lockdown measures in late April,” ING economists said in a note.

“In short, the low point of the slump should now be behind us and there even is the chance for a short-lived strong rebound in the coming months.”

But with financial markets in Singapore, Britain and the United States closed for public holidays on Monday, market moves were relatively small and held within well-worn ranges.

U.S. stock futures gained 1%. MSCI’s index of Asia-Pacific shares outside Japan was 0.3% higher on thin volume.

DOLLAR GAINS

The bullishness in the stock markets contrasted with caution in currency markets, where the dollar ended a rare weekly loss to rise to a one-week high against its rivals.

The dollar, which tends to behave like a safe-haven asset during market turmoil and political uncertainty, gained after China’s move to impose a new security law on Hong Kong heightened concerns about the stability of the city and global trade prospects.

Investors were rattled on Friday when Beijing announced details of the security legislation, which critics see as a turning point for the territory.

Sino-U.S. ties have worsened since the coronavirus outbreak, with the administrations of President Donald Trump and President Xi Jinping trading barbs over the pandemic, including accusations of cover-ups and lack of transparency.

“Rising tensions between the U.S. and China around Hong Kong, trade policy and who is responsible for the 2020 economic dislocation are threatening to end the post March-trough rally,” said Perpetual analyst Matthew Sherwood.

Bond markets were stable with Italy’s 10-year yield at 1.60%, just off six-week lows hit on Friday, and safe-haven German 10-year yields down 1 basis point at -0.50%.

Meanwhile, U.S. crude oil rose 32 cents, or 1%, to $33.57 a barrel. Brent crude was up 9 cents, or 0.26% higher, at 35.22. [O/R]

Spot gold was off 0.3% at $1,729.2 an ounce.

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CORRECTED-COLUMN-Franco-German debt push resonates way beyond pandemic: Mike Dolan

(In May 19 column, corrects spelling of Peterson Institute in sixth paragraph)

By Mike Dolan

LONDON, May 19 (Reuters) – Inevitable caveats aside, this week’s Franco-German push to mutualise European Union debts to help countries worst hit by the COVID-19 slump is a political and financial game changer that goes well beyond the pandemic.

In one fell swoop, the proposal addresses the long-term hit from the coronavirus, smouldering concerns about European fragmentation and the over-reliance on the European Central Bank (ECB) for economic support.

Financial markets, punch drunk from the pandemic shock and jarred this month as Germany’s top court questioned the validity of the ECB’s bond purchases, suddenly sat up and took notice.

Sovereign borrowing costs on the euro zone periphery tumbled, blue-chip euro stocks surged 5% in their biggest daily gain in two months while the euro staged its highest one-day jump against the “safe haven” Swiss franc in eight months.

But if the proposals become EU policy after the bloc’s executive outlines its plans on May 27, they look set to have more far-reaching effects than a curious up-day on the bourses.

Jacob Funk Kirkegaard at Washington’s Peterson Institute for International Economics described the move as Europe’s long-awaited “Hamilton moment” – a reference to the move by the first U.S. Treasury Secretary Alexander Hamilton in the 1790s to have central government assume the debts of individual states after the American War of Independence and sell Treasury bonds to fund them.

“This is a really, really big deal. In both debt mutualisation and common expenditure, a taboo has broken – this is not something the German government has been willing to do before,” he said. “It’s precedent setting and it offers the EU project an entirely new set of powerful tools.”

On Monday, French President Emmanuel Macron and German Chancellor Angela Merkel proposed a 500 billion euro ($550 billion) Recovery Fund offering grants to EU regions and sectors hit hardest by the pandemic.

The leaders, whose agreements traditionally pave the way for EU deals, proposed that the European Commission borrow on behalf of the whole bloc and spend the proceeds as a top-up to the 2021-2027 EU budget which already stands at one trillion euros.

“A system purely based on grants marks a more substantial and powerful transfer of resources than financing largely based on loans,” Morgan Stanley told clients on Monday. “The timing and targeting may help better mitigate the risk of a southern slump without adding to their considerable debt burdens.”

FREE MONEY

Investors and financial analysts have been following this saga for months, with initial calls from France, Italy, Spain and others for centralised pandemic relief finance from common euro zone debt sales – so-called coronabonds – seemingly dashed by resistance in Berlin, Vienna and The Hague last month.

Germany’s apparent change of heart, albeit in the guise of EU-wide borrowing and not just by members of the single currency zone, was the “lapel-grabber” for investors.

For typically sceptical markets, initial reactions were couched in “ifs” and “buts”, calls for more details on the split between borrowing and contributions to the fund, doubts about the spending time frame and wariness of the machinations of European politics in the run up to the May 27 presentation.

“There is still opposition within the EU and the scale is relatively small,” cautioned Paul Donovan, chief economist at UBS Wealth Management. But he said, “markets are focusing on the principle rather than the scale”.

There was no disguising market awareness of the significance – mostly in potentially averting an acrimonious slide towards euro disintegration over a lack of solidarity but also in addressing sticking points in euro integration that existed before the pandemic and will resonate long beyond.

“For the first time, the EU is allowing some sort of debt mutualisation,” Japanese bank Nomura told clients. “It could be a big moment in eventually lowering EU/euro break up risks.”

It’s a coup for pro-integrationists, such as Macron, who have long argued the euro can only be sustained long term if a single monetary policy and central bank are complemented by a common fiscal policy and treasury authority.

The pandemic has only sharpened that view.

It’s also potentially a big win for ECB chief Christine Lagarde in her mission to get euro members to rely more on fiscal policy for lifting the bloc’s growth than the almost exhausted single engine of the ECB’s monetary policy.

While 500 billion euros may seem small compared with the trillions in pandemic relief around the world, it’s still 3.5% of EU annual output and is earmarked as future fiscal stimulus rather than instant healthcare or lockdown relief – probably targeting existing priorities such as greener energy and the digital transformation of Europe’s economy.

What’s more, the AAA-rated Commission, backed by the EU’s 27 members, can probably borrow on the bond markets for free – or at least close to Germany, where prevailing 10-year bond yields are minus 45 basis points.

The bonds can also act as a long-sought common “safe” asset in Europe as well as being eligible for ECB purchases in its quantitative easing operations.

“Crucially it will take some pressure off the ECB from being the only backstop for markets, which should give investors some more comfort in re-engaging in European risk and not fearing as much the surge in issuance we are set to get from peripheral countries,” said Mohammed Kazmi, portfolio manager at UBP. ($1 = 0.9151 euros) (By Mike Dolan, Twitter: @reutersMikeD; Editing by David Clarke)

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Stocks adrift as vaccine rally falters

LONDON/SINGAPORE (Reuters) – European stocks slipped lower on Wednesday and gold gained as a sceptical press report undermined some hopes for a COVID-19 vaccine and concern about obstacles to a recovery from the pandemic returned.

Italian bonds sustained their multi-week lows, continuing to gain from a Franco-German plan for a 500 billion-euro coronavirus recovery fund, ignoring a hawkish counter-proposal in the works.

Europe’s STOXX 600 index was 1.6% lower. The blue-chip FTSE 100 was down 0.4% as Rolls-Royce Holdings Plc shed 0.8% after it said it would cut 9,000 jobs and might close some of its factories.

MSCI’s broadest index of Asia-Pacific shares outside Japan edged up 0.1%. Its world stock index was 0.1% lower after reaching its highest level since March 9 on Tuesday.

Wall Street ended Tuesday lower after medical news website STAT cast doubt on a Moderna Inc COVID-19 vaccine trial. The report said the trial results, which had rallied global stocks this week, lacked detail.

“With markets being very narrative driven, this was sufficient to see European equities pick up where Wall Street left off and head lower,” said James Athey, investment director, Aberdeen Standard Investments.”

Two-thirds of 223 fund managers surveyed by Bank of America reckon recent gains are a bear-market rally.

S&P 500 futures were last up 0.4%. Oil was steady and gold rose to $1,750.93 per ounce.

Italy’s 10-year bond yield was holding near five-and-a-half-week lows hit following the recovery fund announcement. The gap with Germany’s 10-year yield was at 211 basis points, less than 10 bps higher than Tuesday’s five-week lows.

The euro edged up 0.18% to $1.0945, near a two-week peak of $1.09755 reached on Tuesday, supported by the Franco-German proposal for the common fund.

Elsewhere, New Zealand central bank chief Adrian Orr backtracked a little from the possibility of negative rates, a prospect he had flagged just days before. That helped support the kiwi dollar.

Doubts about the outlook held back commodity prices. Japanese business confidence slumped to a decade low as the economy entered recession. Australian retail sales suffered their steepest-ever decline in April.

And the U.S. economy won’t recover its lost ground until sometime after next year, the non-partisan Congressional Budget Office said on Tuesday.

Brent crude futures were at $34.64 per barrel, having rallied nearly 7% this week. U.S. crude was 0.4% lower at $31.84 a barrel.

“While countries have started to relax restrictions on economic and social activities, economies will not return to where things were before the outbreak,” said strategists at Singapore’s DBS bank in a note.

“Geopolitical tensions, especially between the U.S. and China, have also returned and are likely to intensify into the U.S. elections in November.”

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Asian shares rebound as some traders temper pessimism

TOKYO/NEW YORK (Reuters) – Asian shares recovered early losses and crept into positive territory on Wednesday, but stock futures pointed to a lower European open as worries about a slow economic recovery from the coronavirus weighed on global sentiment.

Investors, many facing steep losses due to the pandemic-driven shakeout in assets over the past few months, have also had to contend with renewed U.S.-China trade tensions.

MSCI’s broadest index of Asia-Pacific shares outside Japan erased an early decline and rose 0.3%.

Shares in China, where the coronavirus first emerged late last year, rose 0.2%. U.S. stock futures, the S&P 500 e-minis, rose 0.4%.

Futures in Europe painted a more pessimistic picture. Euro Stoxx 50 futures were down 1.32%, German DAX futures lost 1.29%, and FTSE futures fell 1.01%

Oil markets, which have plummeted this year due to a combination of a collapse in demand and a supply glut, lost further ground.

Treasury yields also inched lower amid caution before a speech by U.S. Federal Reserve Chairman Jerome Powell and rising speculation the United States could one day adopt negative interest rates.

“A decrease in coronavirus cases was the major reason why markets rallied from mid-April, but from here on stocks will move in a broad range,” said Masayuki Kichikawa, chief macro strategist at Sumitomo Mitsui Asset Management Co. in Tokyo.

“The risk of a resurgence in infections will cap the upside, but extremely easy monetary policy put in place so far will limit the downside.”

Leading U.S. infectious disease expert Anthony Fauci on Tuesday warned lawmakers that a premature lifting of lockdowns could lead to additional outbreaks of the deadly coronavirus, which has killed 80,000 Americans and brought the economy to its knees.

Fauci’s comments hit Wall Street stocks overnight, underlining fragile investor sentiment, which has in recent sessions swung between optimism over some easing in lockdowns globally and anxiety about a fresh spike in virus cases.

The Dow Jones Industrial Average fell 1.89% on Tuesday, the S&P 500 lost 2.05% and the Nasdaq Composite dropped 2.06%.

The mood was further soured by proposed legislation from a leading U.S. Republican senator that would authorize President Donald Trump to impose sanctions on China if it fails to give a full account of events leading to the outbreak.

Asian shares got off to a weak start, but sentiment gradually improved as U.S. stock futures edged into the positive territory.

South Korean shares rose 0.7%. Australian shares also rose 0.4%, helped by gains in the healthcare sector. Japan’s Nikkei stock index bucked the trend and fell 0.5%.

Stock markets have rebounded sharply in recent weeks as the spread of the coronavirus slowed in some countries in Asia and Europe, while parts of the U.S. economy began to reopen.

However, some investors still worry that a rush to re-open factories and shops may be premature.

The New Zealand dollar slumped to a six-month low after the country’s central bank doubled its quantitative easing programme and said it has asked commercial banks to be ready for negative interest rates by year’s end.

The U.S. dollar nursed losses as traders braced for Powell’s speech, which will cover economic issues and may offer hints on whether negative rates are a viable policy option.

The yield on benchmark 10-year Treasury notes trimmed losses to trade at 0.6687%. The two-year yield stood at 0.1649%, above a record low of 0.1050% hit on Friday.

Trump on Tuesday again pushed the Fed to adopt negative rates, a hot topic in financial markets since last week when U.S. money markets started to price in a chance of rates below zero.

U.S. consumer prices dropped 0.8% in April, the biggest decline since the global financial crisis.

Oil futures fell in Asia as worries about the virus overcame hope that output cuts would put a floor under prices.

U.S. crude fell 0.74% to $25.59 a barrel. Brent crude fell 1.9% to $29.41 per barrel.

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Oil spurt lifts stocks out of three-day losing streak

LONDON (Reuters) – Stock markets snapped a three-day losing streak on Tuesday and oil was on its longest run of gains in nine months as moves to ease major economies out of their coronavirus lockdowns lifted sentiment.

It was a turnaround from Monday, when bickering between Washington and Beijing triggered fresh selling, but traders have become used to sudden changes of direction in recent months and there were more to handle in Europe, too.

The pan-European STOXX 600 initially rose nearly 2% as a more than 6% jump in Brent prices [O/R] and news that Total wasn’t cutting its dividend gave a 5% boost to battered oil stocks. [.EU]

Things then started to get choppy again though when Germany’s top court ruled that the European Central Bank’s quantitative-easing programme “partially violated” the country’s constitution.

The euro and the region’s government debt fell, too, although the court also said the ECB’s measures didn’t amount to monetary financing – where a central bank bankrolls the government – something banned in Germany. The ruling also didn’t apply to the bank’s new coronavirus PEPP support programme.

“In practice, this should not restrict the ECB too much,” said Holger Schmiedling, chief economist at Berenberg. “However, Karlsruhe (German court) has emphasized that there are limits to bond purchases. This could make it more difficult for the ECB to expand PEPP.”

In addition to the German court angst, euro zone producer prices fell the most in March since the 2008 financial crisis, Eurostat data showed.

The drop was more than expected as the COVID-19 pandemic reduced demand for energy. Prices at factory gates in the 19 countries sharing the euro fell 1.5% month-on-month in March and 2.8% year-on-year.

The euro traded down 0.65% at $1.0835, and a sell-off in bond markets pushed Italy’s ultra ECB-sensitive government yields up past 1.90% again.

That meant the U.S. dollar index pushed higher for a second consecutive day, though the jump in oil meant the big petrocurrencies like Canada’s dollar, Norway’s crown and Russia’s rouble were all stronger.

LIFT OFF

With countries including the United States, Germany, France, Spain, Italy, Nigeria, India, and Malaysia all tentatively easing lockdowns, the hope for oil producers is that the worst of the demand slump is now over.

Brent crude rose 7.8% to $29.32 a barrel, up for a sixth straight day, and U.S. crude rose 10% to $22.43 a barrel for its fifth consecutive rise.

Energy giants Exxon Mobil and Chevron were also leading gains in premarket Wall Street trading where first quarter earnings reports were still rolling in and ISM’s non-manufacturing data was due later

Analysts at Commonwealth Bank of Australia said the structure of the oil price rises, with bigger gains in nearer-dated contracts, suggested expectations of more production cuts and a restoration of fuel demand later this year.

They added, though, that this meant prices were unlikely to recover their huge declines since the start of the year.

“From a very top-down perspective, markets are reacting positively to measures governments and central banks have taken,” said Alistair Wittet, a European equity portfolio manager at Comgest.

“But we are still to see what the full economic consequences of all this will be… the real test will be when the markets start opening up and governments and central banks start withdrawing.”

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Stocks fall as U.S.-China tensions threaten rebound

NEW YORK/LONDON (Reuters) – Global stock markets fell on Monday on concerns U.S.-Chinese bickering over the origin of the coronavirus outbreak will ignite a new trade war, speculation that strengthened the dollar and drove gold prices higher.

The rise in risk aversion came as business surveys showed Asian and European factory activity in April fell deeper into contraction, adding to a dismal outlook as government lockdowns to contain the pandemic froze global production and slashed demand.

U.S. Secretary of State Mike Pompeo on Sunday said there was “a significant amount of evidence” that the coronavirus emerged from a Chinese laboratory, remarks that rattled investors though he did not dispute U.S. intelligence agencies’ conclusion that it was not manmade.

An editorial in China’s Global Times said he was “bluffing” and called on the United States to present its evidence.

“This morning’s session is being dominated by risk-averse trading as investors weigh the negative consequences to global growth from another escalation in U.S.-China tensions,” said Simon Harvey, currency analyst at broker Monex Europe.

“The headlines of further tariffs and supply-chain disruptions come at a time where global growth expectations are already fragile,” he said.

IHS Markit’s final manufacturing PMI for the euro zone sank to 33.4, its lowest since the survey began in mid-1997 and far below the 50-point line dividing growth from contraction.

A gauge from the United States published on Friday showed manufacturing activity plunged to an 11-year low in April.

The pan-European STOXX 600 index lost 2.26% while MSCI’s gauge of stocks across the globe shed 1.12%.

On Wall Street, The Dow Jones Industrial Average fell 195.57 points, or 0.82%, to 23,528.12. The S&P 500 lost 12.58 points, or 0.44%, to 2,818.13 and the Nasdaq Composite added 27.74 points, or 0.32%, to 8,632.69.

Volatility gauges for European and American blue-chip stocks shot up to a two-week high.

Earlier, MSCI’s broadest index of Asia-Pacific shares outside Japan fell 2.5%, pulled down by the Hang Seng in Hong Kong.

The dollar rose against most major currencies. The dollar index rose 0.163%, with the euro down 0.51% to $1.0927.

The Japanese yen strengthened 0.09% versus the greenback at 106.90 per dollar.

Gold prices also rose as investors sought safety. Spot gold added 0.5% to $1,707.26 an ounce.

Simon Black, head of investment management at wealth management firm Dolfin said investors were also adjusting their forecasts for the depth of the economic damage the pandemic will inflict.

“It’s also the economic reality sinking in,” he said, adding that a rebound by global equities of over 20% from lows hit in March was not likely to be sustainable.

GRAPHIC: Rebound – here

Global coronavirus cases have surpassed 3.5 million and deaths have neared a quarter of a million, according to a Reuters tally.

U.S. crude recently rose 2.33% to $20.24 per barrel and Brent was at $26.76, up 1.21% on the day.

Benchmark 10-year notes last fell 1/32 in price to yield 0.6415%.

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