Asian stocks kicked off the week on a strong positive note; hopes for more policy support being pretty much the only explanation to the early week optimism.
Shanghai’s Composite jumped more than 4% on a sudden peak in trading volumes, the Hang Seng rose 3.45%. China will release June economic data over the next two weeks and expectations are solid rebound in activity and higher inflation. Yet, it is unsure whether today’s bullish run is caused by the solid data expectations, or simply speculation.
Stocks in Tokyo gained 1.75%, while the ASX 200 (-0.31%) underperformed despite bullish Chinese stocks on new containment measures in Melbourne to contain the virus contagion.
US futures were well bid in the overnight trading session, pointing at a solid start after a holiday extended weekend. The Dow (+1.30%) and Nasdaq futures (+1.23%) gained, as treasury yields edged higher.
Gold remained little changed near the $1770 per oz.
Activity in FTSE (+1.43%) and DAX futures (+2.13%) hint at a firm positive open in Europe, as well.
It appears that global investors are less sensitive to rising Covid cases, but as enthusiastic about the extra stimulus measures. But the ugly truth is the second half of the year starts under the shadow of second-wave fears and dashed hopes of a swift economic rebound. Whether we would see the economic reality reflected in asset prices is another question. The massive injection of cheap liquidity will likely continue inflating the asset prices. The ultra-low sovereign yield environment should continue supporting the equity prices. The Federal Reserve’s (Fed) liquidity supply soared by near 20% this year to $18.4 trillion and more is to come.
Nevertheless, the stock price inflation is not a sustainable boost for oil prices, as higher asset valuations don’t necessarily mean improved economic activity in the foreseeable future. Oil traders are relatively more worried about the rising coronavirus cases and renewed containment measures. Appetite in WTI remains limited above the $40 per barrel. Failure to break the deadlock near this level could encourage a medium-term downside correction. On the upside, solid offers are eyed before the $45 mark, near the 200-day moving average ($44.50).
