Asia stocks scale 3-month peak | The Daily Star
12:00 AM, June 02, 2020 / LAST MODIFIED: 12:29 AM, June 02, 2020

Asia stocks scale 3-month peak

Asian shares advanced to three-month highs on Monday as progress on re-opening economies helped offset jitters over riots in U.S. cities and unease over Washington's power struggle with Beijing.

There was also relief that while President Donald Trump began the process of ending special U.S. treatment for Hong Kong to punish China, he left their trade deal intact.

"With specific and verifiable measures against China appearing to be weak, markets may draw hollow consolation that the U.S. is treading carefully," said analysts at Mizuho in a note.

After a cautious start Asian markets were led higher by China on signs parts of the domestic economy were picking up. Hong Kong managed to rally 3.3 per cent, while Chinese blue chips put on 2.54 per cent.

An official business survey from China showed its factory activity grew at a slower pace in May but momentum in the services and construction sectors quickened.

"Geopolitical risk can be sufficient to trigger an equity pullback. However, we remain comfortable with our preference for Chinese equities given they tend to be far more sensitive to domestic demand and policy stimulus than global drivers," said strategists at Standard Chartered Private Banking in a note.

The hopeful signs in China helped lift MSCI's broadest index of Asia-Pacific shares outside Japan 2.45 per cent to its highest since early March. Tokyo's Nikkei added 0.84 per cent to also reach a three-month peak.

E-Mini futures for the S&P 500 recovered to be flat, having been up 0.12 per cent in afternoon trade. EUROSTOXX 50 futures firmed 1.48 per centand FTSE futures 1.3 per cent.

The resilience was notable given major U.S. cities were cleaning up streets strewn with broken glass and burned out cars as curfews failed to stop confrontations between activists and law enforcement.

The turmoil was a fresh setback for the economy which was only just emerging from a downturn akin to the Great Depression. Following poor data on spending and trade out on Friday, the Atlanta Federal Reserve estimated economic output could drop a staggering 51 per cent annualised in the second quarter.

The May jobs report due out on Friday is forecast to show the unemployment rate surged to 19.8 per cent, smashing Aprils record 14.7 per cent. Payrolls are expected to drop by 7.4 million, on top of the 20.5 million jobs lost the previous month.

"Current unemployment numbers go far beyond what has been experienced in any post-war recession," wrote Barclays economist Christian Keller in a note.

"To the extent that some sectors may never return to pre-pandemic business-as-usual, labour faces a substantial challenge to reallocate workers," he added.  "Such a process could be a matter of years rather than months or quarters and in the meantime it would weigh on consumer demand."  Bond investors suspect economies will need massive amounts of central bank support long after they reopen and that is keeping yields super low even as governments borrow much more.

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