Dubai: Investors are eyeing another week of gains, as sentiments eased amid signs that global markets may have bottomed out after months of disastrous declines.
“Strains in financial markets are continuing to ease slowly as central banks’ efforts contain the fallout from the pandemic take effect and equity markets rebound on hopes that the spread of the virus is slowing,” said Jonas Goltermann, a senior economist in the global markets team at Capital Economics.
In the last week, top benchmarks in US, Asia, Europe and the Middle East edged up another 2 per cent, adding to gains ranging between 10-20 per cent made in the last 30 days.
Markets stayed in rally mode as more economies revealed plans to reopen after months of virus-induced lockdowns and also as an antiviral was proving effective in the US against COVID-19.
Undeterred by dire data
Investors were undeterred by more data showing the economic damage from the coronavirus pandemic locking down country borders and forcing people to stay at homes.
China reported that its economy — the world’s second-largest after that of the United States — shrank for the first time in decades. Also, data on car sales in Europe showed they collapsed.
“The economic data and corporate earnings continue to paint a rather grim picture of where the world economy is at the moment,” noted Aditya Pugalia, director of financial markets research at Emirates NBD. “Market participants, it appears, remain focused on the future with help from various policymakers.”
Investors got the first broad based assessment of damage to the global economy as the IMF released its latest World Economic Outlook. The fund expects the global economy to contract by 3 per cent in 2020 with negative growth in economies including the Middle East, while seeing a sharp rebound in 2021.
Businesses slowly restart
Businesses in the US were allowed to reopen by May 1 or earlier, and Boeing — one of the world’s largest manufacturers — said it planned to bring about 27,000 employees back to work in Washington State to resume aircraft production.
This was largely seen as the first attempt at large-scale resumption of business activity since the coronavirus outbreak forced companies and government officials to shut down most nonessential work.
Following suit were some European automakers — including Volkswagen, Volvo and Daimler — who are planning to restart assembly lines next week.
However, with a number of companies revealing their first-quarter earnings this week, investors will err on the side of caution and seek evidence that corporations can weather the uncertainty caused by the coronavirus pandemic.
Worst over for markets?
“The US rolling reopening strategy along with high hopes a coronavirus treatment is near could mean the March low was the market bottom,” wrote Ed Moya, a market analyst with OANDA.
“Stocks are soaring today and may for a few more days as some investors believe the worst is behind us,” Moya added. “A cure for the coronavirus is a game changer, but that is still not in the immediate future.”
Analysts warned that a possible V-shaped market recovery will struggle on reinfections risks and permanent damage done to certain sectors of the economy.
Also, with recovery seen in stock markets, but not in the economy, there a dividing opinion between pessimists who think this divergence makes no sense.