World stocks are heading for their best month on record as encouraging early results from a COVID-19 treatment trial and expectations of more European Central Bank (ECB) stimulus help ease the pain of February and March.
Europe saw a cautious start on Thursday, with oil firm Shell’s first dividend cut in 80 years, a record drop in French first quarter GDP and surge in German unemployment giving traders an excuse for some pre-ECB profit taking.
Not that it mattered. Easing coronavirus worries mean the STOXX 600 is up more than 25 per cent over the past six weeks. April will be Europe’s best month since 2009 and for MSCI’s World Index, it could be best since it started in the late 1980s.
“We have gone back to a turbo-charged version of the great financial crisis,” said Simon Fennell, a portfolio manager in William Blair’s global equity team, referring to how markets have surged on mass central bank and government stimulus.
“Today we will also see if the ECB is going to go to one trillion or beyond with its PEPP program,” he said, a reference to the central bank’s beefed-up bond buying scheme.
A 1.4 per cent rise in MSCI’s broadest index of Asia-Pacific shares, excluding Japan, kept it tracking towards a weekly gain of more than five per cent, its best in three weeks.
Optimism was also driven by positive partial results from a trial of Gilead’s antiviral drug remdesivir, which suggested it could help speed recovery from COVID-19, the respiratory disease caused by the new coronavirus.
Japan’s Nikkei jumped 2.8 per cent to a seven-week high and Australia’s ASX 200 rose 2.7 per cent, with the mood further supported by South Korea reporting no new domestic coronavirus cases for the first time since its February 29 peak.
More caution was evident in other asset classes, with the US dollar steady against most of the other major currencies and German Bund yields – which move inverse to price – dipping to a one-month low ahead of the expected ECB moves.
“It’s a hope-based rally rather than an evidence-based rally,” said Anthony Doyle, cross-asset specialist at fund manager Fidelity International in Sydney.
There were still worries about a second wave of infections, he said, adding that huge piles of cash waiting to go back into the markets suggest investor confidence remained subdued.
Markets have been excited by the prospect of a COVID-19 treatment because it may help economies emerge from lockdowns.
Partial results from the 1063-patient US government trial of Gilead’s remdesivir were hailed as “highly significant” by the top US infectious disease official, Anthony Fauci.
They showed hospitalised COVID-19 patients given the drug recovered in 11 days, compared with 15 days for patients given a placebo, and a slightly lower death rate.
But since treatment hopes do not seem to take into account regulatory and distribution difficulties, should a treatment be found, currency and bond markets were more circumspect.
The yield on benchmark US 10-year Treasuries stayed parked at 0.6170 per cent after the US Federal Reserve left interest rates near zero and gave no indication of lifting them any time soon.
The US dollar held its ground against the resurgent Australian dollar for the first time in a week and barely budged against the euro at $US1.0875.
Gold was a touch higher at $US1715 per ounce, though things were still wild in oil markets.
Brent crude and US crude futures rose amid optimism that a storage squeeze is not as bad as first feared and demand for fuel may soon return.
West Texas Intermediate crude futures climbed to $US17.11 a barrel, up 13.6 per cent or $US2.05 at 0840 GMT (1840 AEST).
Brent was up 7.6 per cent, or $1.71 at $US24.25 a barrel in light trading, with the June contract expiring on Thursday, having posted a 10 per cent gain on Wednesday.