Wall Street stocks climbed on Tuesday as investor sentiment showed signs of tentative recovery after the S&P 500 closed at its lowest levels since late 2020 in the previous session.
The S&P 500 rose 1.3 per cent while the technology-heavy Nasdaq index jumped 1.8 per cent. European equities also rose, with the regionwide Stoxx 600 up 0.5 per cent by early afternoon trading while Germany’s Dax increased 0.3 per cent. The UK’s FTSE 100 remained flat.
Overnight, Goldman Sachs cut its European stock forecasts, citing that peak inflation and interest rates are yet to come in the region.
UK debt markets sustained a renewed bout of tumult as fund managers reacted to the government’s package of tax cuts. The yield on 10-year gilts rose to 4.32 per cent while the yield on two-year gilts climbed to 4.2 per cent. The moves come after a brutal Monday of selling which saw the UK’s 10-year gilt yield rising by its most in 40 years, according to Refinitiv data.
The Bank of England and Treasury later sought to calm markets, while the UK chancellor met with business leaders on Tuesday, asserting confidence that his economic plan would work.
“UK rates will no doubt remain in the driving seat today,” ING analysts said. “The BoE’s statement released late in yesterday’s session didn’t seem to calm expectations of an emergency inter-meeting hike but markets had only 30 minutes to react before the close.”
Italian bond yields rose for the second consecutive day after a coalition of far-right politicians won Italy’s elections. The yield on Rome’s 10-year bonds rose as high as 4.76 per cent, its highest level since 2013.
The closely watched difference between Italian and German 10-year yields hit 2.54 percentage points, the highest level since 2020. It then fell back just below 2.50 percentage points, which is considered an important mark by investors. The widening difference underscores investor jitters about the success of far-right parties in Italy’s elections and their willingness to stick to EU rules.
“The market expects that even a rightwing government cannot afford to throw out the current recovery and resilience plan that underpins Italy’s access to the very substantial Next Generation EU funds,” said Andrew Mulliner, head of global aggregate strategies at Janus Henderson. “That assumption may well be tested . . . and with it the spread between Italian and German government bond yields.”
Sterling traded higher after touching an all-time low against the dollar yesterday. The pound gained 0.9 per cent against the dollar at $1.078 and rose 0.7 per cent against the euro, to reach €1.12.
