European stocks extended gains from the previous session on Tuesday, following a steep weekly decline for global shares fuelled by central banks’ tightening of monetary policy.
The regional Stoxx Europe 600 share index added 1.1 per cent in morning dealings, after rising on Monday but still closing down almost 17 per cent for the year. A FTSE index of Asian stocks outside Japan added 1.5 per cent while the Topix in Tokyo closed 2.1 per cent higher.
Futures markets implied Wall Street’s S&P 500 equity benchmark, which has fallen more than a fifth from its January peak, would gain 1.9 per cent at the New York opening bell. US markets had been closed on Monday for a holiday.
“Markets have been horrible,” said Patrick Spencer, vice-chair of equities at RW Baird, with the “indiscriminate selling of everything [that you] tend to see in the later stages of a decline”.
But Hani Redha, multi-asset portfolio manager at PineBridge Investments, characterised Tuesday’s moves as a “bear market rally,” caused by a “psychological desire” for a shift in the market mood.
“It doesn’t really change the bigger picture of growth slowing down and tightening financial conditions,” he added. “That combination still remains the overarching theme, which is pretty challenging.”
The FTSE All-World index, a gauge of emerging and developed market equities, fell by the most since March 2020 last week, with a 5.7 per cent decline — marking its tenth drop in 11 weeks.
That came after the Fed raised its main interest rate by 0.75 percentage points, in its first such move since 1994. Fed governor Christopher Waller then expressed support for another 0.75 percentage point rise in July, describing the central bank as “all in on re-establishing price stability”, after US inflation hit a fresh 40-year high in May.
The Bank of England and the Swiss National Bank also raised borrowing costs last week, by 0.25 percentage points and 0.5 percentage points respectively.
Money markets predict the Fed will lift its funds rate to more than 3.6 per cent by December and a majority of economists surveyed for the Financial Times see the world’s largest economy tipping into recession next year.
On Monday, Dublin-headquartered building materials group Kingspan sounded the alarm about what it called a deteriorating “mood” across its global markets.
Meanwhile, on Thursday, global purchasing managers’ surveys will offer clues on companies’ order volumes, hiring plans and how they are dealing with rising food and fuel costs caused by Russia’s invasion of Ukraine and supply chain glitches exacerbated by China’s coronavirus lockdowns.
“There is already plenty of actual, not merely forecasted, economic weakness,” said Tan Kai Xian of research house Gavekal. “The housing construction sector is hurting badly and the likes of manufacturing and retail are also starting to soften.”
Elsewhere, the euro added 0.7 per cent, to just under $1.06, after European Central Bank president Christine Lagarde pledged to safeguard weaker eurozone nations from surging borrowing costs. The yield on Italy’s 10-year bond fell 0.05 percentage points to 3.64 per cent, having risen above 4 per cent last week. Bond yields move inversely to prices.
Brent crude, the oil benchmark, rose 1.7 per cent to $116.09 a barrel, having advanced almost 50 per cent since the start of this year.
The yield on the benchmark 10-year Treasury note, which underpins loan pricing worldwide, added 0.04 percentage points to 3.28 per cent. Reflecting expectations of higher interest rates, the monetary policy-sensitive two-year Treasury yield gained 0.05 percentage points to 3.21 per cent.