Hope for recovery trumps China fears
U.S. stocks staged a late rally Wednesday as hopes of a faster economic recovery overcame concerns over the relationship between the U.S. and China.
The Standard & Poor’s 500 index finished the day 1.5% higher, closing above 3,000 for the first time in 12 weeks. Other global equity benchmarks also rose, with London’s FTSE 100 gaining 1.3% and the benchmark Euro Stoxx 600 closing 0.2% higher.
However, investors and analysts remained wary after signs of a fresh bout of tension between Washington and Beijing over Hong Kong, as the U.S. said it no longer considered the city to be autonomous of China.
China’s currency fell by the most in three weeks in the wake of the country’s plans to impose a sweeping national security law on Hong Kong. The renminbi weakened 0.46% to 7.17 yuan to the U.S. dollar, its lowest level since September 2019.
Despite the gains in equities, the yield on the 10-year U.S. Treasury bond fell 0.013% as investors continued to seek out safe assets.
The Federal Reserve’s Beige Book, a survey of economic conditions, highlighted the extent of the effect of coronavirus on the
U.S. economy and noted that the outlook remained highly uncertain.
Such fears have dulled a little of the optimism of recent weeks that a deluge of fiscal and monetary stimulus measures from countries around the world would help prop up the global economy.
Brussels plans to seek the power to borrow as much as 750 billion euro in a vast spending program to pump money into the bloc’s worsthit economies.
The yield on government debt from Italy and Spain fell and the euro rallied. The gap between the yield on Italian and German 10-year bonds, which shows the premium traders are demanding to buy Italian debt, fell to below 200 basis points, its lowest level since early April.
Also on Wednesday, Japan’s cabinet approved a $1.1-trillion fiscal stimulus plan, which comes on top of another package already in place.
The proposed spending programs by the EU and Japan are just the latest efforts by global governments and central banks to prop up economies that have been dealt a serious blow by coronavirus.
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