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Global Markets Gain — Update

Global stocks rose Monday as investors turned their focus to major U.S. companies that will report earnings this week and offer guidance on the coronavirus pandemic’s impact on their operations.

Futures tied to the S&P 500 ticked up 0.5%, following a week that saw the benchmark climb almost 1.8% despite a surge in infections across parts of the U.S.

In Europe, the pan-continental Stoxx Europe 600 edged up 0.6%. Most major Asian markets ended the day sharply higher, with the Shanghai Composite Index rising 1.8%.

Investors and traders are watching the corporate earnings season in the U.S. and Europe for any signals about the shape and pace of economic recovery following the disruption caused by the pandemic. Economists generally agree that the quarter ended in June was likely the worst of the downturn, but the extent of the damage is still unclear. The rise in cases in the U.S. has prompted renewed restrictions on business and social in some areas, and threatens to slow down the economy’s revival.

“There’s some optimism about the tone of the upcoming earnings,” said Jane Foley, senior foreign exchange strategist at Rabobank. “People have written off the second quarter, but they have high expectations for the third quarter. The market may have to notch expectations for earnings lower.”

Shares of PepsiCo rose more that 2% ahead of the opening bell in New York Monday, unofficially kicking-off earnings season for major U.S. companies. The company posted better-than-expected revenue for the latest quarter as it made less in its main beverage segment, but saw snacks sales rise as Covid-19 shelter-in-place measures and closures eased during the period.

“The environment has remained volatile and much uncertainty remains about the duration and long-term implications of the pandemic,” Chairman and Chief Executive Ramon Laguarta said. Wall Street banks, airlines and other economic bellwether companies are scheduled to release earnings throughout the week.

The current rally in stocks is likely to be tempered by concerns over the longer term outlook, investors and analysts said.

“There’s scope for a dose of realism at some point,” Ms. Foley said. “Data about credit downgrades, about bankruptcies will drive a more realistic outlook with respect to the cost of Covid later this quarter.”

In Asia, the rally in Chinese mainland stocks continued at the start of the week, taking the Shanghai Composite’s gains this year to about 12.5%. That is making the gauge one of the world’s best-performing major indexes in 2020.

Growing conviction that China’s economy is recovering from the coronavirus has encouraged investment in Chinese stocks from foreign institutions, and from the millions of individual investors that dominate trading in China. State media touted the benefits of a “healthy bull market,” before trying to temper over-exuberance by reminding investors to think long-term.

The recent stock rally in China has been too fast, according Vincent Wen, an investment manager at KCG Securities Asia. It is a policy-driven market in which investors are too focused on official messages and the prospect of easy monetary policy, he said.

“Fundamentally speaking, the real economy remains weak and the path to recovery will be bumpy,” Mr. Wen said.

In commodities, Brent crude, the international benchmark for oil prices, fell 1.2% to $42.74 a barrel. The main gauge for U.S. crude fell 1.5%. An alliance of crude producers led by Saudi Arabia is pushing the Organization of the Petroleum Exporting Countries and its allies to increase oil production starting in August, officials in the group said over the weekend. That is putting pressure on energy prices, analysts said.

The yield on the 10-year U.S. Treasury ticked up to 0.636%, from 0.633% Friday.

U.S. stocks appeared poised to continue their sharp rally despite data showing total U.S. coronavirus cases topped 3.3 million Monday and the nation’s death toll exceeded 135,000, according to data compiled by Johns Hopkins University. Thirty-two states had increases of at least 10% in cases over the past week, prompting public-health experts to warn it may become difficult to halt the spread.

“The rising numbers of cases in the U.S. are just not generating as much fear as they had before,” said Seema Shah, chief strategist at Principal Global Investors. “The death rates aren’t rising as quickly as infection rates. It suggests that the virus is being managed better than before or it’s more focused on the younger generation, suggesting a less severe economic reaction.”

Source: Dow Jones

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