Stock markets extended their gains on Tuesday, as Britain’s reversal of its planned tax cuts bolstered sentiment ahead of a fresh batch of Wall Street corporate earnings.
Europe’s regional Stoxx 600 added 0.5 per cent in early London trading while futures contracts tracking the S&P 500 advanced 1.3 per cent. Those tracking the Nasdaq 100 gained 1.7 per cent. Overnight in Asia, Hong Kong’s Hang Seng rose 1.8 per cent.
Those gains in equity markets followed a sharp rally in the previous session, with the S&P closing 2.7 per cent higher on Monday — supported by Bank of America posting better than expected third-quarter results. BoA attributed its earnings to “resilient” US consumers.
However, a FTSE index of global stocks has fallen 25 per cent this year as central banks around the world tighten monetary policy aggressively to curb rapid price growth. Some investors characterised the recent gains for stocks as a bear-market rally.
“Sentiment has been really depressed,” said Kasper Elmgreen, head of equities at Amundi. Although the UK government’s U-turn and Bank of America results were positive for markets on Monday, he added: “We’re not seeing much that gives us renewed, [long-term] confidence. It’s natural that we have this bounce of optimism and strong days in a really challenging macro outlook.”
Investors have been monitoring companies’ latest financial statements for signs of pressure from high inflation and rising borrowing costs. On Tuesday companies including Wall Street bank Goldman Sachs, streaming group Netflix and consumer and pharmaceuticals giant Johnson & Johnson will report quarterly earnings.
“We are entering what could be a quarter of reckoning: this may be the quarter where earnings have to give,” Elmgreen added.
Concerns have intensified that the US Federal Reserve and its peers will continue to raise interest rates, prompting a protracted slowdown. The Fed has led the charge on raising interest rates, with increases of 0.75 percentage points at each of its previous three meetings — taking its target range to 3-3.25 per cent. Market participants expect the central bank to implement another three-quarter-point rise in November.
The strong start to the week for equity markets was also boosted by the UK’s decision to ditch last month’s “mini” Budget measures, which had spooked markets and sparked a fire sale of pension fund assets.
“The UK news has again seemed to heavily influence global markets over the last 24 hours after the UK government officially announced one of the biggest U-turns in political history and ditched the bulk of what remained of their mini-budget,” wrote Jim Reid, a strategist at Deutsche Bank.
After a rally on Monday, UK assets slipped back on Tuesday. The pound slipped 0.6 per cent against the dollar to trade at $1.128.
Gilts also fell back, with the yield on the benchmark 10-year UK bond rising 0.07 percentage points to 4.04 per cent and the 30-year yield rising 0.03 percentage points at 4.403 per cent, as the price of the bonds rose.
Elsewhere, the yen continued to trade at a historically weak rate against the dollar, trading near the ¥149 mark.
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