European equities and US stock futures rose on Tuesday, as markets steadied after global growth fears drove sharp falls in the previous session.
The Stoxx Europe 600 share index added 1 per cent, while futures trading implied Wall Street’s broad S&P 500 gauge would gain 0.6 per cent.
Tuesday’s gains came after global equities on Monday posted their worst day since June 2020. Despite Tuesday’s bounceback, investors remained negative about the global outlook and the risk of the US central bank — which last week raised its interest rate by half a percentage point for the first time since 2011 — going so far to curb scorching inflation that it chokes off growth in the world’s largest economy.
“The broad context for markets is not great,” said Salman Baig, portfolio manager at Unigestion, in reference to the Federal Reserve tightening monetary policy, persistently high global inflation, Russia’s invasion of Ukraine and an economic slowdown in China driven by stringent coronavirus policies.
Baig added that in equity markets, he would expect “the troughs to continue to be deeper and the peaks to be lower, and that we are basically trending down.”
Signalling expectations of further swings to come, the Vix index — known as Wall Street’s “fear gauge” — registered a reading of 33 on Tuesday, well above its long-term average of 20.
The FTSE All-World index of developed and emerging markets shares had on Monday dropped 3 per cent to its lowest level in more than a year. The losses followed bleak data showing Chinese exports slowed sharply last month, which came on the heels of signs of slowdowns in the German and French manufacturing sectors.
Meanwhile, New York-based investment house BlackRock this week reversed its bullish stance on China, downgrading its “modest overweight” rating on the country’s stocks and bonds to neutral over the deteriorating economic outlook — despite promises of support from Beijing last month.
Futures contracts tracking Wall Street’s tech-heavy Nasdaq 100 rose 0.9 per cent on Tuesday, after the broader Nasdaq Composite closed more than 4 per cent lower. The prospect of the US central bank raising interest rates has in recent months lessened the appeal of more speculative stocks, whose valuations are flattered by ultra-low borrowing costs.
Tech stocks had been “at the epicentre of the sell-off this year, so if you’re looking to buy the dip, that’s where you look first and foremost,” said Patrick Armstrong, chief investment officer at Plurimi Group. “But companies that are only going to make earnings in 10 years’ time? I wouldn’t buy those today and there are still speculative excesses [in tech valuations].”
Altaf Kassam, investment strategist at State Street Global Advisors, warned the market mood would remain pessimistic because central banks were unable to tackle inflation without hurting economic growth.
“There’s really no good outcome in the near term,” he said. “If central banks are too dovish, inflation gets out of control, but if they focus on inflation and raise interest rates, which is one of the few tools they have, that will have a big impact on growth.”
US inflation data due on Wednesday is expected to show that consumer prices rose 8.1 per cent year on year in April, following an 8.5 per cent increase in March.
The yield on the 10-year US Treasury note fell 0.06 percentage points to 3.02 per cent, after the government debt instrument — seen as a proxy for borrowing costs worldwide — rallied late in the previous session as investors moved into haven assets. Bond yields fall as their prices rise.
In Asia, Hong Kong’s Hang Seng share index fell 1.8 per cent. An index of Chinese tech groups listed in the territory declined by 3.2 per cent.
This story has been amended to clarify that the fall in global equities, rather than Wall Street stocks, on Monday was the steepest since 2020.
Source: Economy - ft.com
