Asian and European stocks rallied on Tuesday after Wall Street soared overnight, fuelled by hopes that weakening US economic data would lead to a change in global central bank policy.
Europe’s regional Stoxx 600 index added 1.4 per cent at the open on Tuesday and Germany’s Dax rose nearly 2 per cent. In Asia, Japan’s Topix rose by 3.2 per cent. Futures contracts tracking the S&P 500 gained 1.1 per cent, after the broad US index closed up 2.6 per cent on Monday.
The rally on Monday was the largest daily increase for US stocks since August, with the tech-heavy Nasdaq Composite rising by 2.3 per cent.
The renewed optimism in equity markets comes after a tricky third quarter drew to a close, in which persistently high inflation data sparked hefty interest rate rises from the world’s big central banks, weighing on stocks.
The upbeat mood is largely due to “growing speculation that central banks could soon pivot towards a more dovish stance”, wrote analysts at Deutsche Bank, after data on Monday showed US manufacturing activity was lower than anticipated in September, suggesting a cooling in the US economy.
In a sign that central bankers may be easing off aggressive interest rate moves, the Reserve Bank of Australia raised interest rates by 0.25 percentage points on Tuesday to 2.6 per cent, below the consensus forecast of a 0.5 percentage point rise.
Meanwhile, recent turmoil in UK markets, where the announcement of unfunded tax cuts sparked an upward spiral in borrowing costs last week, has eased. The pound rose 0.6 per cent on Tuesday to its highest point in a fortnight against the dollar, touching $1.14.
The yield on 10-year government debt, which rises when prices fall, fell by 0.09 percentage points on Tuesday to 3.86 per cent, as traders wait for more details on how the government will fund its fiscal plans.
UK chancellor Kwasi Kwarteng will bring forward the publication of his plan to cut debt, releasing details later this month, rather than the previously planned date of November 23. However long-term borrowing costs remain above the 3.5 per cent level seen before Kwarteng’s “mini” Budget.
Elsewhere in government debt markets, government bonds made gains, with the German 10-year Bund yield falling by 0.07 percentage points to 1.82 per cent and the 10-year Treasury yield slipping by 0.06 percentage points to 3.6 per cent.