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London — World stock markets rallied on Wednesday, putting aside worries about rising interest rates to take some comfort from positive news out of Ukraine and upbeat earnings.
The pan-European Stoxx 600 climbed almost 1.5% after a strong session in Asia, where MSCI’s broadest index of Asia-Pacific shares outside Japan rose 1.5% to a two-week high and the blue-chip Nikkei closed 1.08% higher.
US stock futures pointed to a strong open for Wall Street, where shares ended sharply higher on Tuesday.
News over recent days suggesting tensions between the West and Russia over Ukraine may be easing and a string of upbeat earnings appeared to be lifting sentiment towards risk assets, and a sell-off in bond markets abated.
French President Emmanuel Macron, who met his Russian counterpart Vladimir Putin on Monday, said on Tuesday he believed steps can be taken to ease the crisis in which Russia has massed troops near Ukraine but says it does not plan an attack.
On the earnings front, French fund manager Amundi on Wednesday posted a strong rise in earnings, quarterly results from British drugmaker GSK beat forecasts, while Dutch bank ABN Amro reported a higher-than-expected profit of €552m for the fourth quarter.
“The past few days have seen positive headlines over Russia/Ukraine with negotiations between Macron and Putin and reports of German efforts to de-escalate the crisis,” said Mohit Kumar, MD of interest-rate strategy at Jefferies.
“But we retain our view that a greater concern for risky assets is a removal of central bank accommodation as markets have become used to abundant liquidity and low rates for a long period of time.”
Major central banks have become more hawkish in the face of stickier than anticipated inflation. Barring any big surprises, Thursday’s US consumer price index should cement expectations that the Federal Reserve will raise interest rates next month, with a strong number offering further support to those tipping a larger, 50 basis-point rise.
Japan’s 10-year government bond yield touched 0.215%, its highest since January 2016. But after sharp sell-off, broader bond markets appeared to a win a respite.
In early London trade, the US 10-year Treasury yield was down about 3 bps points at 1.92% but not far off the highest levels since late 2019 reached on Tuesday. Germany’s 10-year Bund yield was 5 bps lower at 0.21%.
Last week’s hawkish stance by the European Central Bank has left Bund yields 20 bps higher in the month so far and on track for their biggest monthly rise in a year.
Rising borrowing costs and signs of rates normalisation in Europe have boosted bank stocks: a sub-index of European banking stocks is at its highest since July 2018, up almost 4% since last Thursday’s ECB meeting.
Manishi Raychaudhuri, Asia-Pacific equity strategist at BNP Paribas, said market volatility was lingering as investors tried to figure out how often, how far and how fast central banks would raise interest rates.
“The overarching theme for the market is central banks’ monetary policies,” he said. “I think volatilities will continue and will possibly increase ... but over the longer term corporate balance sheets, particularly in Asian emerging markets, look a lot better than they were.”
Currency markets were relatively quiet, with the dollar index, which measures the greenback against six peers, little changed at 95.556.
Oil prices were slightly higher, recovering some ground from a sharp drop on Tuesday, when concerns of a possible rise in supplies from Iran weighed on the market.
Brent crude futures rose 0.2%, to $90.97 a barrel, while US crude was up 0.2% at $89.52.
Spot gold was steady at $1,826.5 an ounce.
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Published by Arena Holdings and distributed with the Financial Mail on the last Thursday of every month except December and January.