Top 5 Things to Know in the Market on Tuesday, May 26th

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Global markets are rallying as signs of an economic revival in the northern hemisphere increase. All the same, the WHO is continuing to warn of the risks of a second wave of the coronavirus. U.S. consumer confidence data will show whether Americans believe the economy has bottomed, while the pound is rallying despite the U.K. being engulfed in a storm over a government official’s violation of lockdown rules that he helped draft. Here’s what you need to know in financial markets on Tuesday, May 26th.

1. Stocks, currencies, commodities rise, havens fall as virus recedes

There’s a broad risk-on move in global markets as institutional investors scramble to react to signs that the worst of the coronavirus has passed in the U.S. and Europe.

Treasury bonds, gold and other havens – notably the dollar – are all down, while industrial commodities, emerging market currencies and equities are almost all higher.

Over the weekend, Japan lifted its national state of emergency, while Spain announced its tourism sector – one of Europe’s largest – would reopen from July. German press reports suggest the country will drop its travel warning from next month, after already agreeing in principle with its neighbors over a reopening of borders for non-essential travel.

2. Pound rallies as government undermines its own lockdown rules

The pound strengthened as expectations grew that the government will be forced into lifting lockdown measures, amid public outrage at a senior government advisor who flouted the rules that he himself had argued for.

Prime Minister Boris Johnson has refused to fire his senior aide Dominic Cummings, the architect of the successful Vote Leave campaign in the 2016 Brexit referendum, who drove over 250 miles while both he and his wife were ill with the coronavirus, defying government instructions banning non-essential travel.

Separately, the Office for National Statistics said on Tuesday that some 47,000 people had died of the virus, nearing the 50,000 that was the government’s worst-case estimate in April.

Sterling rose by 1.1% against the dollar and by 0.5% against the euro, helped also by reports that the EU was softening its position in the ongoing talks over post-Brexit trading relations.

3. Stocks set to surge at open; consumer confidence eyed

U.S. stocks are set to open with a bang on Tuesday, caught in a wave of optimism over economic reopenings in the U.S. and Europe.

By 6:30 AM ET (1030 GMT), the Dow Jones 30 futures contract was up 498 points or 2.0%, while the S&P 500 was up 1.9% and the Nasdaq 100 contract was up 1.8%.

The market will get a reality check at 10 AM ET with the publication of the Conference Board’s consumer confidence index for May. Confidence plunged to a record low in April as tens of millions of Americans lost their jobs in response to lockdown orders across the country.

Data released earlier showed the analogous indicator in Europe’s largest economy, Germany, rising from April’s low, albeit not by as much as expected.

4. WHO warns of second wave

Despite the exuberance shown in the northern hemisphere as the virus recedes, the World Health Organisation in refusing to sound the all-clear.

The UN-backed body warned on Monday that a second wave of the virus is more than possible if discipline on social distancing is relaxed too soon.

“We cannot make assumptions that just because the disease is on the way down now that it’s going to keep going down,” WHO executive director Mike Ryan said.

The comments come after a Memorial Day weekend which generated scenes of crowded beaches at popular U.S. holiday spots, where few holidaymakers appeared to be wearing masks.

5. Oil gains but struggles to make new highs; supply cut extension eyed

Oil prices gained but struggled to make new post-Covid highs even as equities and metals marched higher.

By 6:30, U.S. crude futures were at $34.08 a barrel, up 2.5% on the day, while Brent futures were up 1.4% at $36.04.

Reports earlier suggested that Russia’s government is meeting with national oil companies later to coordinate an extension of the supply cuts agreed last month with OPEC and other major exporters. The cuts have been one element of a sharp rebalancing of the oil market in the last two weeks, along with recovering fuel demand.

Data on the U.S. market from the American Petroleum Institute will only be published on Wednesday due to the Memorial Day holiday. Further afield, there were fresh signs of a recovery in demand as India allowed domestic flights to resume.

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