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Stocks rise as reopening optimism beats bad data

by Mamie Bostock (2020-05-21)

The outlook seems to be brightening

Global stock markets rose on Friday as optimism over the easing of coronavirus lockdown measures and reopening economies outweighed signs that the planet may be headed for its worst downturn since the Great Depression.

A massive drop in the US payroll in April, although historic, was not quite as bad as feared and so failed to put much of a dent in market confidence.

Non-farm payrolls fell by 20.5 million, the US government reported, which compares to the 21 million market consensus established by data firm Factset. Other forecasts had centred on 22 million.

"Brutal though the numbers are, they are marginally better than economists' expectations and this triggered an initial rally in US equities," said Ulas Akincilar, head of trading at Infinox.

The Dow Jones index rose around 300 points at the opening bell, and steadily built on those gains over the morning.

"Wall Street did not learn anything new regarding the US labour situation," said Edward Moya at OANDA, but the market reaction was signalling that "these job losses are expected to be short-lived".

- 'Darkest day' -

"Markets knew this was coming but it will still go down as the darkest day in the country's economic history," said Ayush Ansal at Crimson Black Capital, calling the data "harrowing".

European stock markets also extended their gains following the figures, as traders seemed Happy Type Beat to place their confidence in mind-boggling stimulus and central bank backstopping measures, and to be reassured by easing China-US tensions.

"The US and China are seemingly still on good terms over the phase one trade deal so that has removed some anxiety across markets," said Jasper Lawler at London Capital Group.

JP Morgan Chase analysts wrote in a note: "While the collapse in economic activity is historic, so too is the global policy response to cushion the impact and support a recovery."

Stock markets are already looking beyond 'harrowing' jobs data

But some analysts advised caution against underestimating the depth of the economic crisis, with Michael Hewson at CMC Markets observing that "it almost appears that the worse the US data is, the higher stocks seem to go".

- 'Eye-watering' -

Neil Williams at investment manager Federated Hermes, calling the US payroll data "eye-watering", and said that even if some job losses were temporary "it will be a tough ask delivering the V-shape GDP recovery the optimists crave".

Bullish sentiment had earlier seeped into Asia, lifted by strength on Wall Street the previous day, with Tokyo soaring 2.6 percent.

In Europe, London's closure for VE Day took much of the usual volume out of the trading day, but Paris and Frankfurt were open and up by a percent or more at the close.

The easing of lockdowns also provided a boost to beaten-down oil markets.

"People are getting back in cars to commute or merely to get out of the house, which is excellent for gasoline demand as that is providing the first phase in a bounce to the oil price recovery," said Stephen Innes of AxiCorp.

Oil prices extended gains in the European afternoon along with stock markets, following the narrative that demand for crude will recover along with the world's economies.

- Key figures around 1540 GMT -

London - FTSE 100: Closed for a holiday

Frankfurt - DAX 30: UP 1.4 percent at 10,904.48 (close)

Paris - CAC 40: UP 1.1 percent at 4,549.64 (close)

EURO STOXX 50: UP 1.0 percent at 2,908.11

New York - Dow: UP 1.5 percent at 24,242.68

Tokyo - Nikkei 225: UP 2.6 percent at 20,179.09 (close)

Hong Kong - Hang Seng: UP 1.0 percent at 24,230.17 (close)

Shanghai - Composite: UP 0.8 percent at 2,895.34 (close)

West Texas Intermediate: UP 2.3 percent at $24.08 per barrel

Brent North Sea crude: UP 2.1 percent at $30.08

Euro/dollar: UP at $1.0857 from $1.0829 at 2050 GMT

Dollar/yen: UP at 106.51 yen from 106.26 yen

Pound/dollar: UP at $1.2435 from $1.2360

Euro/pound: DOWN at 87.32 pence from 87.60 pence