Australia

The ASX is poised to drop in early trade after reports the Trump administration is weighing economic sanctions on Chinese officials, businesses and financial institutions.

The SPI 200 futures contract was lower by 63 points, or 1.08 per cent, to 5,744.0 at 8am Sydney time on Wednesday, indicating losses in early trade.

IG Markets analyst Kyle Rodda said the drop would be "a bit of a breather" after the 2.93 per cent rally on Tuesday.

US stocks overnight pared gains late in trading after Bloomberg News reported US President Donald Trump was considering sanctions, reinforcing comments earlier from White House adviser Larry Kudlow.

Mr Kudlow said the president was "so miffed with China on the virus and other matters that the trade deal is not as important to him as it once was".

He referred to Trump's Phase 1 trade deal with China reached in January, which remains intact.

Trump has said he is preparing to take action against China this week over its effort to impose national security laws on Hong Kong but has not given details.

The benchmark S&P 500 had crossed 3,000 points for the first time since March 5 before dropping back late in Tuesday's session.

The S&P 500 closed 1.2 per cent higher, and the Dow Jones Industrial Average gained nearly 530 points, or 2.2 per cent. Markets around the world also rose.

In Australia on Wednesday, construction data for the March quarter is due.

The ASX enjoyed its best day in seven weeks on Tuesday.

The S&P/ASX200 benchmark index closed up 164.4 points, or 2.93 per cent, at 5,780 points, while the All Ordinaries index was up 160 points, or 2.79 per cent higher, at 5,889.9.

The Australian dollar was buying 66.46 US cents at 8am, higher from 65.91 US cents at the close of trade on Tuesday.

Asia

China shares ended higher on Tuesday as investors cheered a pledge by the central bank to strengthen policies aimed at reviving an economy paralysed by the coronavirus pandemic.

At the close, the Shanghai Composite index was 1.01 per cent higher at 2,846.55. It was the biggest one-day gain for the index since 30 April.

In Hong Kong, the Hang Seng index was up 432.42 points or 1.88 per cent at 23,384.66.

Around the region, MSCI’s Asia ex-Japan stock index was 1.86 per cent firmer, while Japan’s Nikkei index closed up 2.55 per cent.

Europe

European shares closed at an 11-week high on Tuesday, with travel and leisure stocks soaring on hopes of a revival in tourism as countries gradually reopened after a months-long lockdown.

The pan-European STOXX 600 rose 1.1 per cent to hit its highest closing level since 9 March.

Europe’s battered travel sector jumped 6.9 per cent following reports Spain and Germany would ease travel restrictions, while no noticeable increase in infections were reported after the easing of lockdowns.

British Airways owner IAG jumped 22.5 per cent, low-cost carrier easyJet gained 19 per cent and UK-listed shares of travel group TUI soared 52 per cent.

Germany’s Lufthansa extended gains after the government threw the airline a 9 billion euro ($14.84 billion) lifeline on Monday.

UK's FTSE 100 returned from a holiday to rise 1.2 per cent as Prime Minister Boris Johnson said Britain will reopen thousands of high street shops, department stores and shopping centres next month.

Other hard-hit sectors such as eurozone banks surged 6.5 per cent, bouncing off record low levels, while insurers and carmakers gained about 3 per cent each.

“We believe that the pro-cyclical market bias that we called for will have some legs, and build on itself in the next weeks,” J.P. Morgan Cazenove analysts told clients.

“It should last while PMIs are normalising. The upmove in Eurozone PMI that we saw last week is likely to extend in the next reading, for June.”

The STOXX 600 has climbed 30 per cent from its mid-March lows, as hopes of further policy support and improving economic data fuelled hopes of a faster economic recovery from the novel coronavirus pandemic.

All eyes will be on the European Commission’s release of its recovery plan on Wednesday to gauge the progress of a Franco-German proposal for a 500 billion euro grants-based coronavirus recovery fund.

Paris-headquartered shopping centre operator Klepierre jumped 12.6 per cent after saying it had reopened 80 per cent of its European malls and hopes to reopen 90 per cent of them within 10 days.

French carmakers Renault and Peugeot jumped 6.6 per cent and 5.8 per cent respectively.

French President Emmanuel Macron said that measures announced to help the country’s car industry were worth more than 8 billion euros ($13 billion) in total.

Macron said autonomous and electric vehicles will form a key part of the sector after the coronavirus crisis.

Sanofi fell 1.3 per cent, in line with broader healthcare losses, despite the French drugmaker’s impending US$13 billion ($20 billion) payday from selling most of its 20.6 per cent stake in US partner Regeneron.

North America

US stocks closed higher on Tuesday on optimism about the development of coronavirus vaccines and a revival of business activity, but the S&P 500 failed to hold above the key psychological level of 3,000 points.

Stocks pared gains late in the session, after Bloomberg News reported the Trump administration was weighing a range of sanctions on Chinese officials, businesses and financial institutions, reinforcing comments earlier in the day from White House adviser Larry Kudlow.

Kudlow said President Donald Trump was “so miffed with China on virus and other matters that the trade deal is not as important to him as it once was.”

The benchmark S&P 500 had crossed 3,000 for the first time since March 5 before dropping back late in the session.

The S&P 500 has risen as much as 37.9 per cent from its March 23 low due to central bank and government stimulus at a time when the US economy is seeing its biggest job losses since the Great Depression of the 1930s. It closed 11.7 per cent below its 19 February record high.

On Monday, California, which has had one of the country’s most restrictive shutdowns, said it would allow retail businesses to offer in-store shopping and places of worship to reopen.

On top of vaccine-related news, Shawn Snyder, head of investment strategy at Citi Personal Wealth Management, pointed to better-than-expected home sales data and comments from JPMorgan Chase CEO Jamie Dimon.

“When you add the news all together everyone’s getting a boost,” Snyder said.

Data showed US consumer confidence nudged up in May, adding to hopes that the worst of the economic impact of the shutdown is in the past.

The Dow Jones Industrial Average rose 529.95 points, or 2.17 per cent, to 24,995.11, the S&P 500 gained 36.32 points, or 1.23 per cent, to 2,991.77, and the Nasdaq Composite added 15.63 points, or 0.17 per cent, to 9,340.22.

While all 11 S&P sector indexes were higher for much of the day, the technology and healthcare sectors ended slightly lower. Still, sectors such as financials and industrials charged ahead with gains of 5 per cent and 4 per cent, respectively.

A comment from JPMorgan’s Dimon suggesting that the bank may not need to increase its reserves in the second half of the year was a boost for the financial sector as well as the broader market, according to Citi’s Snyder.

JPMorgan shares closed up 7 per cent, making it the biggest boost for the financial sector.

US biotech group Novavax closed up 4.5 per cent as it joined the race to test coronavirus vaccine candidates on humans and enrolled its first participants. Merck & Co ended up 1.2 per cent after it announced plans to develop two separate vaccines.

While macroeconomic data was pointing at a deep recession, Citi’s Snyder was focused on the recovery. But he questioned how much further the market would rise with the US presidential election in November and simmering US-China tensions.

“The returns from here will be harder to come by,” he said.

Beaten-down travel-related stocks climbed with the S&P 1500 airlines stocks index rising 13 per cent and cruise operators including Carnival Corp, which closed up 12.6 per cent.