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Optimism rules

Optimism rules

Hopes for a fast recovery in economies coming out of lockdown, and support from governments and central banks drove risks assets higher again overnight. The US dollar, Japanese yen, bonds and gold all fell as market sentiment remains immune to economic data, weaker company profits, rising Sino-China tension and unrest in the US.

European shares stood out. The German Dax index led the way with a 3.75% gain as investors speculated the government’s 5 billion Euro stimulus package will see consumers buying cars again. Volkswagen and Daimler finished the session with gains of more than 5%, and Daimler shot 7.7% higher. The positive trading was supported by expectations the European Central Bank will expand its purchases of assets by 500 billion Euros at its meeting on Thursday night.

US shares also rallied, despite another night of unrest and destruction in major cities. Technology stocks garnered strong support, pushing the Nasdaq index to within 3% of its all-time highs. Major bank strategists are capitulating on their bearish outlooks. A Credit Suisse analyst warned a V-shaped recovery could be stronger than markets are currently pricing, after Goldman Sach’s withdrew its earlier bearish view and suggested downside risk for the S&P 500 index could be just 10%.

Futures markets indicate opening gains for stocks across the region. PMIs from Australia, Hong Kong, Japan and China are all expected to record further contraction today. Given the market mood, any disappointment could be ignored, but positive surprises may accelerate risk asset buying.

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