World shares up on improved economic data about recovery

London — Shares gained on Wednesday as investors bet that improving economic data and more policy stimulus from Washington would sustain momentum for equities.

European stocks followed Asia’s lead, advancing in early trading and on course to end four straight days of losses. London, Frankfurt and Paris indices were all up about 1.4%.

MSCI’s broadest index of Asia-Pacific shares excluding Japan had earlier risen 0.3%.

Fueling the optimism were bets that the world’s major economies were recovering from the damage caused by the coronavirus pandemic. Economic data over recent days has fueled such expectations, buoying stocks and helping the dollar rise from two-year lows.

On Tuesday, data showed that US manufacturing activity sped to a nearly two-year high in August on a surge in new orders, its highest level since November 2018.

“The data in the US is telling us that the recovery is on track, and this is good news,” said Alessia Berardi, senior economist at Amundi, adding there was a “disconnection” between economic fundamentals and market positioning. “It’s too early to say that we will shift the recovery to a much stronger acceleration, or a V-shaped recovery.” 

The US data followed similarly upbeat Chinese and European manufacturing indicators this week.

Still, recovery from the eurozone’s deepest recession on record will take two years or more, according to a Reuters poll of economists last month, though investors spoke of cautious optimism.

“We do need to focus on what the numbers are telling us,” said Gregory Perdon, co-chief investment officer at Arbuthnot Latham. “We are trying to cautiously embrace risk, without trying to be foolish about it.”

The MSCI world equity index, which tracks shares in 49 countries, rose 0.2%. Wall Street futures gauges pointed to gains of 0.5%

On Tuesday, both the S&P 500 and Nasdaq closed at records, with the technology sector and Apple leading the charge. Tech giants have been among the winners in the emerging recovery.

Waiting for Washington

Also feeding the positive mood were signs that Washington is moving closer to offering some fiscal stimulus support to counter damage from the coronavirus.

White House chief of staff Mark Meadows said on Tuesday that Republicans in the Senate are likely to take up a Covid-19 relief bill next week offering $500bn in additional federal aid. The administration is still weighing help for US airlines, he added.

Yet congressional negotiations on further federal intervention remain at a standstill after the Democrat-led US House of representatives passed its $3.4-trillion measure in May.

With the dollar faltering in recent weeks over fears that the US recovery may lag that of China and the eurozone, the factory data was welcomed by currency traders.

The dollar index added 0.4% at 92.577 on Tuesday, rising its lowest since April 2018 at 91.737.

In commodities, crude oil futures extended gains on the US and Chinese factory activity. Brent crude futures rose 0.8% to $45.59 a barrel, climbing for a third day.

Reuters