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Iseq down slightly as global markets rebound

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The Iseq Index is down marginally after initially opening slightly higher on Wednesday as the rebound in stock prices spread to Europe.

However, markets remained on edge as Asian equities pared their advance while US futures retreated.

London’s premier index has bounced back from a brutal sell-off that wiped trillions of pounds off global markets in response to fears that rising inflation could spark interest rate hikes.

The FTSE 100 Index was up 56.61 points to 7,202.73 shortly after the market opened, breaking its losing streak and helping it recover from a plunge on Tuesday when blue-chip stocks saw nearly £50 billion lopped off their value.

On the second tier, the FTSE 250 Index rose 200.45 points to 19,467.86.

Across Europe, Germany’s Dax was 0.6 per cent higher, rising 55.27 points to 12,450.77. In Asian markets, Tokyo’s Nikkei 225 Index rebounded out of the red, trading up 0.2 per cent. However, Hong Kong’s Hang Seng Index was down 0.7 per cent.

Treasuries rebounded after Tuesday’s slump, as gold climbed and crude advanced. The Stoxx Europe 600 Index headed for the first increase in eight days as most sectors on the gauge rose.

Earlier in Asia, Japan’s benchmarks eked out slim gains at the close after retreating from the session’s highs, while Chinese shares dropped. The dollar was flat as most commodities rallied.

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Markets from Europe to Japan tumbled into oversold territory after the rout of the past week, which was triggered by rising bond yields and the prospects for a return of inflation and subsequent tighter monetary policy.

Amid a slew of calls to “buy the dip,” investors will be watching Wednesday’s auction of 10-year Treasuries for clues on where markets go from here.

Elsewhere, oil rose after three days of declines as an industry report showed an unexpected decline in US crude stockpiles. And Bitcoin traded little changed at around $7,700.

Meanwhile, euro zone government bond yields pulled back from Tuesday’s lows as the markets steadied overnight. However, investors will be keeping sharp lookout for any policymaker responses on Wednesday to the sharp sell off in stock markets.

A string of rate-setters from the United States and Europe are scheduled to speak on Wednesday, and investors will be watching closely for any response to the stock market sell-off on Tuesday that pushed bond yields sharply lower.

“We may see some comments from officials today on the market volatility, investors will be watching for how they will treat this – I would be surprised if they take it too lightly,” said ING strategist Benjamin Schroeder.

The European Central Bank’s Daniele Nouy and Sabine Lautenschlager are set to hold a news conference on Wednesday morning while the US Federal Reserve’s Robert Kaplan, William Dudley and Charles Evans are all due to speak later in the day.

“But in the meanwhile it looks like we are in a risk on/risk off type of market,” Mr Schroeder added, using a phrase that describes the phenomenon of “safe” bond prices rising when “risky” stocks fall and vice versa.

Ahead of those speeches, yields across the euro zone are flat to a touch higher, and have moved away from Tuesday’s lows in a resumption of the trend of recent weeks.

The yield on Germany’s 10-year government bond, the benchmark for the region, rose a basis point to 0.70 per cent, having plunged to 0.66 per cent on Tuesday.

The yield on this bond has more than doubled since early December as the ECB cut bond purchases by half at the start of the year and is expected to end the programme in its entirety soon after it runs out in September.

Other euro zone bond yields were flat to a touch higher on the day, though bonds from lower-rated Italy, Spain and Portugal edged lower on the day.

And yet, Tuesday’s stock market crash was a reminder that there is still demand for Europe’s best-rated and most liquid asset, and for other well-rated government bonds in the continent.

This will tested later as Germany is set to sell bonds maturing in August 2028 in an auction.

“We are sticking to our forecasts for now, there are still some risk events up ahead: the US government shutdown and the Italian election,” said Mr Schroeder. ING expects German 10-year bond yields to be at 0.85 per cent by the end of 2018.

The US House of Representatives on Tuesday approved another stopgap bill to keep the federal government from shutting down, hours after president Donald Trump said he would “love” to see a shutdown if immigration legislation were not included. -Reuters

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