Europe To Power Higher Despite Cooling US-China Relations

European bourses are looking to extend gains for a third straight session on Thursday as optimism over the reopening of economies once again overshadows rising tensions between the US and China over Hong Kong.

Last night, Washington took steps towards potentially removing the city’s special trade status. US Secretary of State Mike Pompeo said that the US no longer views Hong Kong as autonomous from mainland China. This has been the most serious response from the Trump administration over China’s crackdown on civil liberties in the financial hub.

The backdrop of cooling relations between the US and China could limit gains, but we are not seeing that here is Europe at the moment. Instead, stocks are bounding higher on the expectations that consumers will be coming out of lockdown with an increased desire to spend, making up for those months stuck at home. This rally does of course assume that consumers will feel financially confident to continue spending.

EC’s rescue fund

The European Commission’s announced rescue fund is also going some way to boost sentiment on the continent. The fund will include €500 billion raised on the bond market. Given the size of the crisis that is hitting the region, the sums involved are small. However. it is the move towards financial integration that is being cheered by investors. This marks a clear turning point in policy. 

Day-ahead

Looking ahead, US data releases will be in focus, with Q1 GDP, US Durable goods and jobless claims taking center stage. The numbers are expected to be dire, with Q1 GDP to confirm -4.8% contraction on an annualised basis, and Durable goods to decline by a record -19%. Worryingly initial jobless claims are expected to remain over 2 million. There will also be a growing focus on continuing claims for signs of rehiring as states ease lockdown measures to reopen the economies.

Oil drops on larger than expected stockpiles

Whilst European futures are charging higher and US futures to a lesser extent, oil markets are extending yesterday’s steep losses. Hopes of a smooth recovery for oil from the coronavirus lockdown were dashed after oil inventories rose by more than expected.

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