Asian equity markets rallied on Monday as traders looked past a staggering jump in US job losses to focus on governments easing virus lockdown measures and data showing death rates falling in some of the worst-hit countries.
Observers warned, however, that with the outlook still murky, traders could be getting ahead of themselves – while there are concerns of a second wave hitting South Korea and China, which had been slowly reopening their economies.
Official figures on Friday showed a record 20.5 million people were laid off in the US last month, sending unemployment soaring to 14.7 per cent, the highest since the Great Depression.
However, the reading was slightly lower than forecasts and Wall Street ended a healthy week with strong gains as focus turned to plans to lift restrictions that have kept billions of people stuck at home for months in the US and the rest of the world.
AxiCorp Financial Services Pty Ltd’s Stephen Innes said: “There is hope within this labyrinth of statistical perversity.
“The vast majority of job losers anticipate being recalled. Temporary layoffs on this scale have never happened – like almost every data point in this jobs report – and the hope is that it leads to a rather rapid return to work.”
Tokyo, Hong Kong, Sydney and Taipei all ended up more than one per cent.
Jakarta, Bangkok and Mumbai also put on more than one per cent in the afternoon, and there were also gains in Singapore and Wellington – though Seoul lost 0.5 per cent. The Cambodia Securities Exchange index fell 0.89 per cent.
Shanghai gave up early gains to end marginally lower despite a pledge by the People’s Bank of China to “more powerful” policies to support the world’s number two economy.
In early trade, London, Paris and Frankfurt posted gains.
However, Sri Lanka’s stock market closed within seconds of reopening following a seven-week trading halt, having tumbled more than 10 per cent.
Traders took heart in figures out of badly hit countries including France, Germany and the US showing death rates continuing to sink, while leaders ease up on restrictions put in place to stop the disease’s spread.
However, there is the ever-present fear of another bout of infections.
South Korea, which had been praised for the handling of its initial outbreak, has been forced to shut all bars and clubs in Seoul after a cluster of new cases, while China on Monday reported the first new infections in over a month in Wuhan.
In Germany, at least one district had to re-impose restrictions after an outbreak at a meat processing plant. The latest data out of the country indicated the infection rate was rising again.
Fears of second wave
However, Oanda Corp’s Jeffrey Halley said markets would not likely be hit by such news just yet.
“Markets will likely ignore the threat of Covid-19 part two, staying with the momentum of the peak-virus trade,” he said in a note.
National Australia Bank’s Tapas Strickland remained upbeat as economies grind back to life after months of near standstill.
“A sharp pick-up in economic activity is being priced by markets, and should occur as long as there is no second wave of infections that necessitates the re-implementation of containment measures,” he said.
“Markets are thus likely to be increasingly sensitive to the track of new Covid-19 cases in countries that have begun to ease restrictions. Progress on a vaccine/effective treatment would also be a game changer.”
The improving sentiment lifted high-yielding, riskier currencies against the dollar, with the South Korean won, South African rand and Australian dollar among the best performers.
But, with markets having soared from their March lows, there are concerns the rally may have run too far considering the uncertainty about how quickly economies can bounce back.
Bob Baur at Principal Global Investors LLC said: “Because so much future growth and uptrend potential is priced in, we expect a period of relapse and consolidation through June.”
Oil prices slipped on profit-taking after surging last week on hopes for a pick-up in demand and as inventories begin to fall and producers slash output.
Innes added: “While price action is bound to be choppy as economies try to move out of lockdowns, it is probably safe to say that traders have planked a base on oil prices.
“Oil fundamentals are showings signs of improvement by the week.”