Investor Optimism Over Reopening Lifts Markets

06/05/2020 | 08:53 am

By Avantika Chilkoti and Joanne Chiu

U.S. stock futures rose Friday, extending gains after data showed the economy defied expectations to add jobs in April.

Futures tied to the S&P 500 gained 1.2%, while Dow Jones Industrial Average futures climbed 1.8%. Changes in futures don't necessarily reflect moves after the opening bell.

The Labor Department said Friday that the labor market added 2.5 million jobs in April. Economists surveyed by The Wall Street Journal had expected a loss of 8.3 million jobs.

The yield on 10-year U.S. Treasurys jumped to 0.94% from 0.818% Thursday, the highest since late March. Bond yields often rise as investors expect economic growth -- and inflation -- to pick up in the future.

Elsewhere, the Stoxx Europe 600 benchmark rose 1.1% early Friday, with France's CAC 40 rallying 1.9% and Germany's DAX benchmark rising 1.8%. In Asia, Hong Kong's Hang Seng benchmark rose 1.7% and South Korea's Kospi rallied 1.4%.

Investors are optimistic that job cuts have been focused in sectors like services and temporary work, where jobs are traditionally cut -- and re-added -- relatively swiftly.

"The market is focused on the speed and method of reopening and taking comfort from China where you've seen a resumption that is pretty quick," said Thushka Maharaj, global multiasset strategist at J.P. Morgan Asset Management.

"Re-employing in these sectors does happen organically and you would expect that as reopening happens in earnest some of these jobs will come back," she added.

May's jobs report, out at 8:30 a.m. Eastern time Friday, is expected to reveal a further wave of job losses and an unemployment rate climbing to a fresh post-World War II high.

But investors appeared to be looking past the carnage in the job market and the widespread protests in U.S. cities over the killing of George Floyd and focused on the economy getting back to its feet after months of coronavirus-related lockdown.

The recent stock-market surge was partly driven by massive stimulus, plus optimism over "the loosening of restrictions across the world and the expectations that we could see a V-shaped recovery," according to Daryl Liew, chief investment officer at REYL Singapore.

"However, we haven't really seen that in the broader economy yet," Mr. Liew said, adding that further government intervention might be needed to support businesses if activity doesn't rebound by the third quarter.

Bank stocks extended gains from Thursday with the Euro Stoxx Banks benchmark rallying 4.4%. Among the biggest gainers in Europe, Société Générale and BNP Paribas gained 7.8% and 4.7%, respectively.

On Thursday, the European Central Bank scaled up its bond-buying program, while Germany adopted its second economic-stimulus package since the start of the coronavirus pandemic.

"It's a step in the right direction from the European leaders and shows some unity," said Brian O'Reilly, head of market strategy for Mediolanum International Funds. Rising bond yields help banks, which borrow short-term to lend long-term, boosting profitability. The yield on 10-year German government bonds ticked up to negative 0.290% from negative 0.316% on Thursday.

In commodities, Brent crude, the global benchmark, rallied 3.4% to $41.34 a barrel.

Write to Avantika Chilkoti at Avantika.Chilkoti@wsj.com and Joanne Chiu at joanne.chiu@wsj.com

 

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