Stocks continued to rise on Tuesday, building on Monday’s strong gains and ignoring a sharp contraction in the German economy.
Stock markets across Europe opened higher on Tuesday morning and futures were pointing higher in the US. Analysts said an encouraging statement from the US trade negotiator’s office on the US-China trade deal helped support the move to riskier assets like stocks.
US trade negotiator Robert Lighthizer and his Chinese counterpart held a call on Monday to review the progress of the “Phase One” trade deal signed in January.
“Both sides see progress and are committed to taking the steps necessary to ensure the success of the agreement,” the Office of the United States Trade Representative said in a statement.
Naeem Aslam, chief market analyst at Avatrade, said: “The outcome of trade review between the two largest economies of the world has removed a significant obstacle for the global equity markets.”
Shortly after the open in Europe, the FTSE 100 (^FTSE) and DAX (^GDAXI) were up 1%, the CAC 40 (^FCHI) and the FTSE MIB (FTSEMIB.MI) had both gained 1.1%, and the IBEX 35 (^IBEX) was 1.3% higher.
The rally in Europe came despite fresh data from Germany confirming the country’s economy shrank 9.7% in the second quarter. The contraction was in fact better than economists had forecast and reflected the height of lockdown in the country, which now looks outdated. Dutch bank ING described the data as the “final glance in the rearview mirror.”
Risk appetite remained strong on Wall Street. S&P 500 futures (ES=F) were up 0.4%, Dow Jones Industrial Average futures (YM=F) were 0.6% higher, and Nasdaq futures (NQ=F) rose 0.3%. The pre-market action suggests US stock markets could continue to break new ground on record highs, extending recent runs.
Tuesday’s rally follows strong gains on Monday. Stocks were buoyed by hopes of a new COVID-19 treatment approval in the US and reports that the US could speed through an experimental vaccine.
“There was a strong ‘risk-on’ tone to investor sentiment amid positive newsflow in relation to potential COVID-19 treatments/vaccines,” said John Fahey, a senior economist at Allied Irish Banks.
Action in Asia overnight was mixed. Japan’s Nikkei (^225) rallied strongly, gaining 1.3%, but Chinese markets were muted. The Shanghai Composite (000001.SS) slipped 0.5%, while the Shenzen Component (399001.SZ) and the Hong Kong Hang Seng (^HSI) were both flat.