SYDNEY / HONG KONG: Asian stocks rose to their four-month high on Monday (July 6) as investors saw a resurgence in Chinese activity to boost global economic growth, even as rising cases of coronavirus delayed the reopening of business in the United States.
MSCI’s broader index of Asia-Pacific stocks outside Japan rose 1.6 percent to its highest level since February, with bullish sentiment spreading to other markets.
EUROSTOXX 50 futures were up 2.3% and FTSE futures 1.5%, while E-Mini futures for the S&P 500 rose 1.1%.
Eyes were on the Chinese blue chips, which rose 5.4 percent on top of a 7 percent rise last week, to its highest level in five years. Even Japan’s Nikkei, which has lagged behind with a weak domestic economy, posted a 1.8 percent gain.
In Hong Kong, Jefferies chief global equity strategist Sean Darby said the positive sentiment towards Asian markets was the result of better-than-expected regional economic data and high levels of liquidity.
“All the indicators of global monetary policy are flashing green right now, it is very weak and that should mean that underperforming markets should perform well,” Darby told Reuters.
“The dollar has also weakened in the past five days, so emerging markets, led by China, typically do well because of that.”
Mizuho strategist Ken Cheung said the growing level of margin financing in mainland China, which was worth 22 trillion yuan (US $ 3.1 trillion) in June, double the amount in February, will remain a key factor in the direction of the land share market.
“It appears that the financing margin will be the most important driver for an A-share bull market,” he wrote in a research note.
The China Securities Journal wrote Monday that China needed a bull market to help finance a rapidly developing digital economy.
Most markets gained ground last week when a large amount of June economic data beat expectations, although the resurgence of coronavirus cases in the United States is clouding the future.
In the first four days of July alone, 15 states reported record increases in new cases of COVID-19, which has infected nearly 3 million Americans and killed about 130,000, according to a Reuters count.
Analysts estimate that the reopens affecting 40 percent of the US population have now recovered.
“Markets will have to climb a wall of concern in July as economic activity is likely to be softened by the V-shaped recovery seen in recent months,” said Robert Rennie, head of financial market strategy at Westpac. .
“We must also remember that relations between the United States and China are deteriorating markedly.”
Two US aircraft carriers conducted exercises in the disputed South China Sea on Saturday, the US Navy said, as China also carried out military exercises that have been criticized by the Pentagon and neighboring states.
The risks, combined with relentless stimulus from central banks, have kept sovereign bonds backed by better economic data. While U.S. 10-year yields rose to 0.7 percent on Monday, well above the June high of 0.959 percent.
Citi analysts estimate that global central banks are likely to buy $ 6 trillion of financial assets in the next 12 months, more than double the previous high.
The major currencies have been largely in range with the dollar index at 96,930 after spending an entire month in a tight band of 95,714 to 97,808.
The dollar was a little firmer on the yen at 107.68 on Monday, while the euro rose to $ 1.1281.
In the commodity markets, gold has benefited from super low interest rates worldwide as negative real yields on many bonds make non-interest bearing metal more attractive.
Spot gold traded at $ 1,772 per ounce just above last week’s high of $ 1,788.96.
Oil prices mixed with Brent crude futures up to 30 cents at $ 43.10 a barrel, while US crude fell 14 cents to $ 40.51 amid concerns that the surge in coronavirus cases in the United States it would curb the demand for fuel.
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