Stocks and dollar gain on U.S. retail sales, drug trial

By Herbert Lash and Marc Jones
NEW YORK / LONDON (Reuters) - Risk appetite has eased on Tuesday with a record surge in U.S. retail sales, new support from the Federal Reserve and the Bank of Japan, and positive test results for COVID-19 treatment that drives global equity markets, get new life higher and crank the dollar.
US government bond yields rose, as did demand for lower-rated southern European debt due to the positive sentiment, although gold in the safe haven area boosted rocker trading due to a new corona virus outbreak in China.
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A jump of almost 5% overnight in the Japanese Nikkei gave Asia the best day since the end of March, while the major European stock exchanges gained around 3%. It was a broad rally with no declines in the 30 components of the Frankfurt DAX, only a decrease in the CAC40 in Paris and three of the 109 components of the FTSE 100 in London. Wall Street also rose, though not as much.
US retail sales grew the most in May. This is new evidence that the coronavirus pandemic-induced recession may be coming to an end, while experimental results showed that dexamethasone, a cheap and widely used steroid, reduced mortality by about a third the most severely ill COVID-19 -Patients.
An overnight report said the Trump administration was preparing a $ 1 trillion infrastructure proposal after the Federal Reserve announced Monday that it would buy corporate bonds to boost liquidity.
"It looks like we recovered well for retail sales in May, which is good news. The drug results are very good news, and then the spending package is good news," said Patrick Leary, chief market strategist at Debt Underwriter Incapital.
"All this stuff is bullish for stocks, bullish for corporate bonds," said Leary. "Congress has the ability to support the economy through its purchasing power. The Fed is doing what it can through its credit powers."
Fed chairman Jerome Powell told U.S. lawmakers Tuesday when he began the first of two days of the statement that a full economic recovery will not take place until Americans are certain that the coronavirus epidemic is under control has been.
"The medical news outperforms the business news," Leary said. "Nobody is worried about the underlying problems in the economy - they are worried about COVID-19."
MSCI's global stock index rose 2.26%, while the national FTSEurofirst 300 index closed 2.90% and emerging market stocks rose 2.32%.
The Dow Jones Industrial Average rose 526.82 points, or 2.04%, to 26,289.98. The S&P 500 rose 58.15 points, or 1.90%, to 3,124.74, and the Nasdaq Composite gained 169.84 points, or 1.75%, to 9,895.87.
The increase in shares outperformed the declines on the New York Stock Exchange by more than 4: 1 and by more than 3: 1 on the Nasdaq.
News elsewhere contributed to the optimistic mood.
The monthly ZEW survey on investor sentiment in Germany showed that investors are confident that Europe's largest economy will overcome the worst effects of the corona virus by the end of the European summer.
The dollar was largely stronger, with the euro falling 0.55% to USD 1.126 and the Japanese yen falling 0.01% to 107.32.
The British pound [GBP /] rose due to unemployment figures that were not as bad as feared and friendlier Brexit talks.
The Bank of Japan increased its loan packages for companies with liquidity constraints from around $ 700 billion to $ 1 trillion. At the same time, it kept interest rates constant and maintained its view that the Japanese economy will gradually recover from the pandemic.
The 10-year benchmark US Treasury yield rose 4.7 basis points to 0.7495%.
German, French, Dutch and other core returns also rose. Riskier Italian yields fell to their lowest level since late March, and the iTraxx European crossover index, which reflects the cost of insurance against the failure of junk-rated corporate bonds, fell to its lowest level in six days. [GVD / EUR]
"In the absence of a further increase in new (coronavirus) infections in China or the USA, market hopes of a monetary and fiscal tailwind as well as an improvement in sentiment indicators should prevail," the Commerzbank strategists write.
Oil prices rose in volatile trade as Wall Street rose, and the International Energy Agency (IEA) raised its forecast for oil demand for 2020. Concerns about a second wave of coronavirus cases have limited earnings.
Brent crude futures ended the session up $ 1.24 or 3.1% at $ 40.96 a barrel, while US West Texas Intermediate Crude Oil (WTI) was up $ 1.26 or 3.4 % rose to level at $ 38.38 a barrel.
US gold futures rose 0.5% to $ 1,736.50 an ounce.
(Reporting by Herbert Lash; editing by Dan Grebler and Leslie Adler)

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