Stock Market’s Recent Rally Concerns Analysts. Why’s That?

Japanese stocks surged forward to a six-month high on Thursday. Investors focused on the positive aspects of recent economic data. They hope that China and the United States will stick with their trade deal at a crucial weekend meeting.

MSCI’s broadest index of Asia-Pacific shares outside Japan edged up by 0.1%. Meanwhile, gains in semiconductor makers boosted Japan’s Nikkei 1.8% higher to a six-month peak.

The stock markets rallied in Europe and Wall Street on Wednesday. As a result, the S&P 500 surged forward to a record closing high. Despite that, futures pricing suggests the latest round of optimism might lose steam soon.

On Thursday, Euro STOXX 50 futures declined by 0.1%, while FTSE futures tumbled down by 0.7%, and the S&P 500 futures lowered by 0.1%.

Moh Siong Sim, Bank of Singapore currency analyst, stated that people are looking at the glass half full, testing the waters.

A sell-off in the U.S. bond market has lifted yields enough throughout the week to trigger a sharp pullback in gold and a decline in the yen as flows come in from Japan.

In the United States, the number of daily new COVID-19 infections seems to be stabilizing around 55,000. An unexpected surge in consumer prices last month has seemed to reinforce confidence in the country’s economic recovery.

U.S. 10-year yields retraced a touch to 0.6638% on Thursday. Gold also steadied at $1,926 an ounce, but the dollar remained under pressure against the euro.

What do OCBC’s Experts Think?

Despite the positive outlook, some experts are concerned about the scale and pace of stock market gains. Analysts at OCBC in Singapore worry that a stress index they launched in April has done nothing but decline since its inception.

OCBC economist Wellian Wiranto stated that market stress has subsided to such a low level that they start to wonder if they are missing anything. So, OCBC decided to zoom in on the U.S.-China tensions, which might start to feature more prominently. Top officials plan to meet on Saturday to review the progress of the Phase 1 trade pact.