Stocks climb on new signs of economic recovery

Stocks edged higher on the first trading day of the third quarter as new signs that China’s economy is recovering from the coronavirus pandemic outweighed concerns of further outbreaks in the US.

China’s CSI 300 index of Shanghai- and Shenzhen-listed stocks rose 0.5 per cent in early trading on Wednesday, while Australia’s S&P/ASX 200 and South Korea’s Kospi jumped 0.9 per cent and 1.1 per cent, respectively. Hong Kong’s stock market was closed for a public holiday.

Those gains came following further evidence that the world’s second-biggest economy is building momentum after largely containing the health crisis. The Caixin manufacturing purchasing managers’ index — a measure of factory activity — came in at 51.2 for June, marking its second straight month of growth.

That result “reflected manufacturers’ confidence that there would be a further relaxation of epidemic controls and a normalisation of economic activities”, said Wang Zhe, senior economist at Caixin Insight Group.

Overnight, Wall Street’s S&P 500 closed 1.5 per cent higher while the tech-heavy Nasdaq rose 1.9 per cent. That capped off US stocks’ best quarter in more than two decades on the back of a broad financial markets rally sparked by huge central bank support measures and hopes of a powerful economic recovery from the health crisis.

However, a senior medical official said that daily new US coronavirus cases could more than double as western and southern states struggle to get outbreaks under control.

Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, warned the US Senate on Tuesday that the country was “going in the wrong direction” on the pandemic.

“We’re now having 40-plus thousand new cases a day. I would not be surprised if we go up to 100,000 a day if this does not turn around,” Dr Fauci told a Senate hearing. “I am very concerned because it could get very bad.”

In addition to fears over the spread of Covid-19, geopolitical tensions have also come to the fore. Beijing on Tuesday drew swift condemnation from the US, Europe and Australia after it passed a controversial security law for Hong Kong, an important global finance hub.

Futures trading suggested that Wall Street’s S&P 500 would open 0.2 per cent lower when US trading begins later in the day. London’s FTSE 100 was tipped to slip 0.1 per cent.

In Asia-Pacific, Japanese shares lagged the rest of the region, the benchmark Topix slipping 0.2 per cent after a central bank survey showed manufacturing sentiment fell to its lowest level since 2009 in June.

The yen, often viewed by investors as a haven asset during times of uncertainty, added 0.2 per cent to ¥107.72 per dollar.

With coronavirus infections outside of Tokyo remaining low, however, Japan’s “economy should bounce back in the second half of the year”, said Tom Learmouth, an economist at Capital Economics.

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