Stocks To Extend Surge Higher On Recovery Optimism

As lockdown measures continue to ease, investors shrugged off geopolitical tensions and civil unrest on the streets of the US for Wall Street to finish at its highest level in three months.

The optimism carried over into Asia, with the Nikkei rising to its best level since February boosted by the first expansionary reading for Chinese services PMI in four months. The Caixin service sector activity data jumped to 55 in May, its strongest reading in almost a decade and jumping from 44 in the previous month. The data adds to mounting evidence hat the Chinese economic recovery is underway following the coronavirus lockdown earlier in the year.

Positivity in Asia looks set to spill over into Europe, with bourses pointing to a stronger start. The markets are keen to fall back into the familiar rhythm of “the only way s up”, boosted by cheap money and reopening optimism without fully digesting the economic hit and scars which are being left behind. Despite the downside risks, investors are remaining firmly focused on the positives.

Equities are pushing higher, along with oil (OIL) and the antipodeans, meanwhile safe havens US Dollar (UUP) and gold (GLD) are once again on the back foot.

Service sector PMIs

Today’s PMI readings could be good example of the almost blind optimism in the markets. PMI readings for the Eurozone and the UK are expected. Spain is expected to see the service sector pmi rebound from 7.1 to 25 in May, whilst activity in Italy’s service sector is expected to have jumped from 10.8 to 26.5. The optimists in the market will focus on the huge improvement in activity in the sector, whilst the pessimists would be drawn to the fact that activity remain deep in contraction. As the saying goes, optimism is blind optimism.

Unemployment figures in Europe are expected to show a slow creep northward. However, the headline numbers are not expected to climb as high as US due to a range of government programmes that pay companies to keep staff employed even when they are not working.

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