A rally in energy stocks led Wall Street higher as Brent crude breached $30 a barrel for the first time since mid-April.
The S&P 500 climbed 1.5 per cent at the open, with energy the best performing sector. The Nasdaq Composite was up by a similar margin, leaving the tech-heavy index just 1.5 per cent off entering positive territory for 2020.
The cautious reopening of economies have helped buoy markets. Countries such as Spain, Italy and India have tentatively eased lockdown measures this week, allowing some businesses to reopen. Austria has reopened stores while Denmark has already sent children back to school.
Hopes that lockdown exits will boost crude demand have underpinned a rebound in the oil prices. Brent added 10.7 per cent to trade at $30.12 a barrel, rebounding from a drop to less than $16 a barrel last month. West Texas Intermediate was up 16.7 per cent at $23.66 a barrel, setting the US marker on track for its fifth consecutive day of gains and leaving it up more than 80 per cent during the past week.
“The market is still vulnerable but now one thing is clear, the demand bottom is behind us, and this is manifesting in oil prices which are on the rise,” said Per Magnus Nysveen at consultancy Rystad Energy. Analysts at RBC Capital Markets also noted that congestion data showed US vehicle traffic levels had already rebounded off their lows.
Donald Trump, the US president, who has sought to boost prices through a push for global supply cuts welcomed the rally. “Oil prices moving up nicely as demand begins again!” he wrote on Twitter.
But with consumption still well below levels at the beginning of the year and storage capacity continuing to fill, some analysts are concerned that crude prices may yet slip back.
“Many market participants believe there is light at the end of the tunnel,” said Giovanni Staunovo, an analyst at Swiss bank UBS. “But while the inflection point appears near, we would describe the current environment as the darkest hour just before the dawn. With oil inventories still increasing, crude oil prices remain vulnerable to renewed setbacks.”
The uplift in market sentiment spilled over into European and Asian equities.
The Stoxx Europe 600 was up 1.7 per cent in afternoon trade, while London’s FTSE 100 and Frankfurt’s Dax gained 1.7 per cent and 1.8 per cent, respectively.
Elsewhere in Europe, the euro and Italian bonds sold off after Germany’s constitutional court called on the European Central Bank to justify its bond-buying programme. While the court found the ECB’s purchases of public sector debt were legal, it asked that it review whether they were “proportionate” in pursuit of its monetary policy objective.
The single currency fell 0.7 per cent against the dollar to $1.0832 — its lowest level in a week — before recovering slightly in the afternoon.
Investors also moved out of Italian bonds, worried about potential constraints on the ECB’s ability to expand its debt purchases. That widened the spread between 10-year Italian and German borrowing costs — a key measure of country risk in the eurozone — by 6.9 basis points to 2.39 per cent.
Asian equities made modest gains overnight, with markets in Japan, China and South Korea closed for public holidays. Hong Kong’s benchmark Hang Seng closed up 1.1 per cent while Australia’s S&P/ASX 200 rose 1.6 per cent.
