European shares followed Asian equities higher on Tuesday, while government bonds came under pressure as traders moved back in to riskier assets after the worst streak of weekly losses for global stocks since 2008.
The regional Stoxx Europe 600 index added 0.7 per cent after closing the previous session flat, while London’s FTSE 100 extended gains on Monday to rise 0.2 per cent in early dealings.
Those moves came as Hong Kong’s Hang Seng rose 2.9 per cent, with a tech-focused sub-index rising more than 5 per cent as the heads of large Chinese technology companies met with regulators to discuss the state of the country’s digital economy.
The dollar index, a measure of the currency against six others, slipped 0.2 per cent. Foreign exchange markets are “calming a little after a riotous month,” said analysts at ING, following a period of global shares sliding and the US currency hitting multiyear highs. It “seems like we are entering a period of consolidation,” said ING.
Economic unease has centred on China, they added, where lockdowns have stoked fears about the global growth outlook.
Beijing’s lockdown strategy “seems unlikely to change anytime soon”, said ING, “but there is some very short-term optimism that the residents and workers of Shanghai might be released after three days without a new Covid case”.
Futures contracts tracking Wall Street’s S&P 500 added 0.5 per cent during early European trading after the gauge closed a choppy session down 0.4 per cent. Contracts tracking the technology-heavy Nasdaq 100 added 0.7 per cent, after a 1.2 per cent drop for the wider Nasdaq Composite index on the back of weakness in large tech and consumer stocks including Amazon and Tesla.
As stock markets rose, eurozone debt was hit by a renewed wave of selling on Tuesday, sending yields higher. The yield on the 10-year German Bund, seen as a proxy for borrowing costs across the bloc, rose 0.08 percentage points to 1.01 per cent. The benchmark debt instrument had started 2022 in negative territory. The yield on Italy’s equivalent government bond rose 0.08 percentage points to 2.92 per cent.
US debt also came under pressure, with the yield on the 10-year Treasury note adding 0.04 percentage points to 2.92 per cent and the policy-sensitive two-year yield rising 0.05 percentage points to 2.62 per cent.
The Federal Reserve raised interest rates by 0.5 percentage points this month, with similar-sized increases expected at the central bank’s next three meetings as it moves aggressively to curb stubbornly high inflation.
The withdrawal of Fed stimulus has damped the appeal of the US sovereign bonds, while anticipation of higher borrowing costs has hit speculative, high-growth stocks whose valuations had been flattered by ultra-low interest rates during the coronavirus pandemic.
In commodities, Brent crude dipped 0.1 per cent to just over $114 a barrel. The international oil benchmark remains 4 per cent higher for the month and almost 50 per cent higher for the year as traders weigh the prospect of a global economic slowdown hitting demand, with concerns over supplies following Russia’s invasion of Ukraine.
