LONDON (Reuters) – Global stocks were back firing on all cylinders on Tuesday as a record rebound in U.S. retail sales and fresh support from the Federal Reserve and Bank of Japan reignited risk appetite after a bumpy few days.
A near 5% jump by Japan’s Nikkei gave Asia its best day since late March, Europe made 3.5% gains and a near 3% leap for Wall Street futures had U.S. bulls back up and running. [.N][.EU]
It wasn’t just a stimulus sugar rush. The U.S. Commerce Department said overall retail receipts rose 17.7% last month after falling by a record 14.7% in April. The gain was more than double the previous record of 6.7% in October 2001, when Americans were resuming spending in the aftermath of the 9/11 attacks.
Germany’s monthly ZEW investor sentiment survey showed that investors are confident that Europe’s largest economy will be over the worst of the coronavirus impact by the end of the European summer.
“Retail sales in the U.S. came roaring back in May by much more than expected,” said Neil Birrell, Chief Investment Officer at Premier Miton. “A combination of improving data and Fed policy will keep investors happy”
Those retail figures also helped the dollar firm to 96.65, having dropped almost 1% from Monday’s high of 97.396 overnight as risk-sensitive emerging market currencies such as Mexico’s peso and South Africa’s rand saw big 1-1.5% bounces too. [/FRX][EMRG/FRX]
Britain’s pound [GBP/] rose on a mix of better-than-feared unemployment numbers and friendlier Brexit talks, while the euro and yen were shunted down to $1.1295 and 107.43 by the U.S. data, having barely moved for most of the European session. [/FRX]
The Bank of Japan on Tuesday increased its lending packages for cash-strapped firms to $1 trillion from about $700 billion, but also kept rates steady, sticking to its view that the Japanese economy will gradually recover from the impact of the coronavirus pandemic.
The Fed also announced on Monday eagerly-awaited details of its programme to lend funds directly to companies.
The facility, which began purchasing shares of exchange-traded funds in mid-May, is one of the Fed’s recently created tools meant to improve market functioning after the coronavirus.
In the bond markets, benchmark 10-year Treasury yields rose from 0.74% to 0.77, and the spread between two-year and 10-year yields widened to 57 basis points in another sign of improving risk appetite.
Federal Reserve Chair Jerome Powell begins the first of two days of testimony before U.S. lawmakers later and is expected to flag an uncertain and uneven economic recovery that will likely require continued monetary and fiscal support.
German, French, Dutch and other core yields rose in Europe too. Riskier Italian yields fell to their lowest since the end of March and the iTraxx European crossover index, which reflects the cost of insuring against junk-rated corporate bond defaults, fell to its lowest in six days. [GVD/EUR]
“In the absence of a further surge in new (coronavirus) infections in China or the U.S., the market hopes about monetary and fiscal tailwinds alongside improving sentiment indicators should prevail,” Commerzbank strategists wrote.
Oil prices also steadied as lingering concerns that fuel demand will be eroded by new coronavirus infections were offset by expectations of further cuts in crude supplies. [O/R]
U.S. crude was trading up 1.5% at $38.58 a barrel, after falling 1.2%, and Brent crude also rose 1.4% to just above $41 per barrel.
The retail sales data pushed Wall Street futures up over 3% after the U.S. markets had made a late dash to finish higher on Monday.
A whopping 98% of investors surveyed by BOFA believe markets are “overvalued” after world stocks roared back from March lows. But those fears haven’t stopped many from joining the rally.
The survey showed hedge fund net equity exposure jumping to 52% from 34%, the highest since September 2018. U.S. tech and growth stocks remained the “most crowded trade” for a second straight month.
Additional reporting by Elizabeth Howcroft and Yoruk Bahceli in London; Editing by Barbara Lewis and Gareth Jones