The risk-on trading seen in the Asia Pacific region yesterday flowed into overnight market action. European stocks rose, and bonds and gold came under pressure as investors looked through the current disruption in anticipation of a recovery in the second half of the year. However comments from the White House late in the US session that the President sees the China trade deal as less important after the Covid-19 disruption saw the highflying Nasdaq and broad based S&P 500 give up much of their session gains.

Base metals rose across the board in London trading as traders responded to new China infrastructure spend on their return from Monday’s UK holiday.  Lead prices rose 2.5%, and copper gained 1.4%, only to slip in late US trading.

Commodity currencies are major beneficiaries of the positive sentiment. The New Zealand dollar climbed back over 62 US cents overnight, and the Australian dollar crested 66 cents. The Norwegian Kroner rose with crude oil prices, and a US dollar now costs less than $1.38 Canadian for the first time since time in 10 weeks. The US dollar weakened against most majors, leaving EUR/USD just below key resistance at $1.10.

Stock buying in the last twenty-four hours has a strong defensive bent. Beaten down consumer and financial stocks are leading markets higher, at the expense of the previously popular tech and healthcare sectors. This indicates post lockdown optimism is foremost in market thinking. Asia Pacific futures markets suggest the region did its buying yesterday, with most indices finishing the overnight session flat, and the Australia 200 index down more than 1% after yesterday’s region leading 2.5% jump.

China industrial profits for April (previous -34.9%) and Australia Q1 construction work done (forecast -1.5%) are due later this morning. The re-emergence of the economy in China is a key market theme, and any surprise on profits could move market thinking.

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