Published: June 9th, 2020
European stocks ended the first week of June on a roll. The combination of the European Central Bank (ECB) stimulus, overall global recovery, and the surprisingly positive U.S. employment data is responsible for this uptick. This rise also marked the most robust gains in weeks with much of the positive movement coming from the energy, travel, and banking sectors.
The European stocks closed the Friday, June 5 trading session firmly. The gains recorded during the day brought the shares to a four-week high. The impressive market trends are attributed to the surprisingly positive U.S. employment data.
The Bureau of Labor Statistics of the U.S. Labor Department released its report for May 2020 that indicated that the U.S. nonfarm payroll employment increased by 2.5 million in May. The unemployment rate also dropped to 13.3% following the reopening of some U.S. states that contributed 2.5 million new jobs.
Substantial gains came from the energy, travel, and banking sector. The combination of these three helped the European stocks and the global stocks to get back on a rally after a temporary derailment.
The STOXX Europe 600 index extended the 2% gain from the previous day to close the week at 6.5%. This rise marks a five-day consecutive increase of stock prices, the best performance since the week of April 10.
The German DAX closed the day’s trading session with a 2.6% increase and more than 10% overall for the week. This performance marks the German stocks index’s best show since the second week of April. The CAC 40 of France leaped almost 3% while the London FTSE 100 grew by 1.7%.
The U.S. government announced an overall reduction in the unemployment numbers even though some 2.5 million Americans filed for unemployment. The partial reopening of the U.S. economy created some 2.5 million new jobs in May. This figure is a significant drop from the forecasted loss of 7.25 million jobs for the same period. The overall unemployment figure stood at 13.3% against the expected 19%. The total number of American jobs lost now stands at 20.7 million.
Naeem Aslam, AvaTrade’s chief market analyst, says that if these figures are accurate, then they are a lot likely to propel the recovery of not only the U.S. economy but also the global economy.
Dow futures took a cue from the positive figures to grow by 600 points. This new figure follows an earlier 300 points that the index gained after the news that the Trump administration was lining up a further $1 trillion for the coming round of economic boost.
Before the Friday, June 5, rally by the European stocks, the markets had slumped the previous day following a downbeat growth assessment that the ECB President Christine Lagarde had given.
However, the ECB may have made up for Lagarde’s downgrade of an assessment by increasing its response to the coronavirus pandemic to €1.35 trillion (Approx. $1.52 trillion) from €750 billion. The union also extended the run of the package from December 2020 to June 2021.
The amount of stimulus that central banks have injected into the global economy to help tame the tide of the coronavirus fallout is responsible for the continuing equities rally. Aside from the package unveiled by the ECB, Germany added its package amounting to €130 billion (Approx. $147 billion) to help the European country relaunch its economy and counter the effects of joblessness.
On the backdrop of the good news, investors showed more confidence after paying little mind to the data that put the U.K. consumer confidence dropped to its lowest in more than a decade. They also disregarded April Germany data that showed a record plunge in manufacturing orders.
Shares of Germany’s flagship carrier Deutsche Lufthansa AG shot 6% prompting the country’s capital markets authority Deutsche Börse to announce that it will move the stocks to the MDDAX index.
The airline is one of the corporations that the current health crisis hurt significantly. Because of the massive loss of traffic, the airline’s supervisory board approved a €9 billion (Approx. $10.2 billion) state-backed resuscitation package.
Overall, the global travel sector came out stronger following a 19% surge of the shares of American Airlines during the premarket trading on Friday, June 5. This rise follows another impressive 41% surge on Thursday, June 4. The significant increase in the share prices came after the airline indicated that it would increase its capacity following signs of improved travel demand.
Other gainers in the travel industry included International Airlines Group, whose shares climbed by 11%. Shares for Carnival Corporation & plc, a British-American cruise operator also rose in price by 15%.
Shares of companies in the energy sector also surged on Friday, June 5, following a positive environment signaled an extension of production cuts. On Saturday, June 6, the Organization of Petroleum Exporting Countries (OPEC) and their oil-producing friends agreed to extend the record production cuts.
The teleconference also concurred to push for compliance and to urge Iraq and Nigeria to abide by the existing curbs. The cartel had agreed to cut production by 9.7 million barrels per day on May 1. However, July’s production will stand at 9.6 million barrels per day after Mexico, which was to enforce a cut of 100,000 barrels per day announced that it is sticking to the prior agreement.
Though there is optimism in the oil and energy sector, particular challenges exist that may affect the prices in the global market. For instance, some nations do not adhere to the prescribed quotas. Such countries are called upon to enact additional cuts during the July through September production period to make up for the over-production recorded in May and June.
The European stocks rallied on Friday, June 5, to record a four-week high. The significant climb is attributed to the impressive U.S. jobs data and the news that ECB has agreed to inject a further €600 billion (Approx. $680 billion) into the Eurozone economy. The energy, travel, and banking sectors accounted for the majority of these swells.