US stocks edge higher after strong second-quarter rally

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US stocks rose on the first day of the third quarter as bullish investors took heart from cheering economic data and news of a potential coronavirus vaccine.

The S&P 500 index rose 0.6 per cent in morning trade in New York on Wednesday after the ADP employment report showed that US private payrolls rose by 2.37m in June.

FedEx, seen as an economic bellwether, led gainers, up 14 per cent after benefiting from a boom in online shopping and home deliveries. The tech-heavy Nasdaq Composite index rose 0.8 per cent.

The gains made for a positive start to the third quarter. On Tuesday US stocks capped off their best quarter in more than two decades on the back of a broad rally encouraged by central bank support measures and hopes of a powerful economic recovery.

Hopes for a recovery were boosted by news of a potential vaccine from Germany’s BioNTech. A trial yielded positive results, preliminary data released on Wednesday revealed. The clinical study was run with pharmaceuticals group Pfizer in the US. BioNTech shares rose 6 per cent on Nasdaq while Pfizer rose 4.8 per cent.

The yield on the US 10-year Treasury note, which rises as the price of the bond falls, ticked up 2.3 basis points to 0.676 per cent.

However, the optimism was not matched in Europe, where the benchmark indices in London and Paris both finished 0.2 per cent lower, and Germany’s Dax finished 0.4 per cent lower. Economic data showed joblessness had ticked up to a five-year high in June. The composite Stoxx 600 eked out marginal gains, up 0.2 per cent.

Morning trading in Europe was disrupted by technical problems on Deutsche Börse’s trading system, which serves the markets of Frankfurt, Vienna, Malta and Sofia. An outage lasted for more than two hours although floor trading continued. The electronic trading system went down in April for a longer period of time.

So-called purchasing managers’ indices, surveys of business confidence, across Europe were better than forecast but the global manufacturing number still reported a contraction in activity compared to the previous month.

Gabriella Dickens, assistant economist at Capital Economics in London, pointed out that recent readings have been difficult to interpret.
“It is not clear whether respondents are comparing output, employment, etc to that in the previous month or to a ‘normal’ level or that of a few months ago,” she said. “We suspect that the increase in the PMIs implies a rise in activity, albeit to subdued levels.”

Illustrating investors’ uncertainty, the yield on the debt of the 10-year German Bund rose 7bp to -0.4 per cent, a two-week high. Sentiment was bolstered by better than expected retail data, indicating a faster economic rebound. Yields rise when prices fall and investor demand for debt softens.

The weak opening to the quarter in Europe came after mixed signals from Asia, where markets rose on Chinese data that showed a second straight month of expansion in the world’s largest manufacturing sector.

Hong Kong’s stock market was closed for a public holiday, while China’s CSI 300 index of Shanghai and Shenzhen-listed stocks climbed 2 per cent on Wednesday. Australia’s S&P/ASX 200 added 0.6 per cent.

The gains came despite the UK government saying that it would open a path to citizenship for almost 3m Hong Kong residents in response to Beijing passing a law that tightens its grip on the territory.

“We believe this final enactment and full text should not be too surprising for the market and should not lead to another major sell-off,” said Adrienne Lui of Citibank. “But further international responses to the national security law need to be monitored.”

There was also further evidence that the world’s second-biggest economy is building momentum after the coronavirus crisis hit hard. The Caixin manufacturing PMI, a measure of factory activity in China, came in at 51.2 for June, after also indicating growth in May.

That result “reflected manufacturers’ confidence that there would be a further relaxation of epidemic controls and a normalisation of economic activities”, said Wang Zhe, senior economist at Caixin Insight Group.

Oil prices rose slightly, with futures on West Texas Intermediate, the US benchmark, gaining 1.6 per cent to $39.88 a barrel. Futures on Brent, the international marker, were 2 per cent higher at $42.10 a barrel.

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