Naomi Rovnick and Thomas Hale
The rise across Europe’s stock bourses echoed gains in New York on Monday, with the benchmark S&P 500 index rising to a new record.
German GDP contracted 9.7 per cent in the second quarter, which was the height of the coronavirus pandemic in Europe, as private consumption, investments and exports collapsed. An earlier reading had shown the economy shrinking by 10.1 per cent between April and June, however.
Meanwhile, a survey by Germany’s highly regarded Ifo Institute showed sentiment among business leaders in Europe’s biggest economy improved to its highest level since February. The research group’s business climate index rose to 92.6 for August, up from 90.4 in July.
The data boosted the euro, which rose 0.4 per cent against the dollar to purchase $1.1830. The Europe Stoxx 600 index rose 0.6 per cent, Germany’s DAX was 0.8 per cent higher, while France’s CAC 40 gained 1 per cent.
Equities in peripheral European economies followed the trend, with Spain’s Ibex gaining 1.1 per cent and Italy’s MIB adding 0.7 per cent.
S&P 500 futures advanced 0.5 per cent, suggesting the index will add to its 4.9 per cent rise so far in August. Shane Oliver, head of investment strategy and chief economist at AMP Capital, said that while shares were “vulnerable” in the “seasonally weak months” leading up to the US election in November, various positive factors could push them higher.
He pointed to “good progress in developing vaccines, the downtrend in the US dollar [and] signs of recovery and low interest rates”.
The German GDP data were a “final glance in the rear view mirror,” Carsten Brzeski of ING wrote, predicting a recovery in the July to September quarter because of a reduction in VAT and summer domestic tourism. “The economy will have one of its best quarterly performances ever in the third quarter,” he said.
Shamik Dhar, chief economist at BNY Mellon, added that while coronavirus cases were once again rising across Europe, hospitalisation and death rates did not appear to be heading back towards the levels seen in March and April. “The course of the disease remains hugely uncertain and this latest spike may lead to more regional lockdowns,” he said. “But my essential view is that Germany will bounce back,” he added, in part because of pent-up consumer demand.
In London the FTSE 100, which has lost almost a fifth of its value during 2020 as fears over the economic impact of Covid-19 and Brexit mount, rose 0.6 per cent. In Asia-Pacific, shares across the region rose for a second day, with MSCI’s benchmark up 0.4 per cent.
Asian markets were buoyed by positive signs from the US and China regarding the countries’ trade deal after a meeting between China’s vice-premier Liu He, US trade representative Robert Lighthizer and Steven Mnuchin, secretary of the treasury.
“Both sides see progress and are committed to taking the steps necessary to ensure the success of the agreement,” said the office of the US Trade Representative in a statement.
Brent crude, the international oil benchmark, added 0.2 per cent to $45.24 a barrel. Gold added 0.4 per cent to $1,932 per troy ounce.