European shares and US stock futures advanced on Tuesday after two days of declines triggered by concerns about central banks raising interest rates aggressively to tame inflation.
The regional Stoxx Europe 600 share gauge was up 0.8 per cent in afternoon trading, while Germany’s Dax gained 1.8 per cent. London’s FTSE 100 rose 0.2 per cent following a one-day holiday.
Meanwhile, Wall Street equity futures turned higher, with contracts tracking the broad S&P 500 and the technology-heavy Nasdaq 100 up 0.7 and 0.9 per cent respectively.
Those moves came after global stocks weakened in the previous two sessions, as investors responded to hawkish messaging at last week’s Jackson Hole economic symposium.
Central bankers reaffirmed their commitment to tackle the rapid rate of price growth at the annual summit in Wyoming, even as the prospect of tighter monetary policy threatens to induce a protracted slowdown.
In a speech on Friday, Federal Reserve chair Jay Powell said the US central bank “must keep at it until the job is done” on inflation.
Some market participants suggested that the declines in equities could offer an opportunity to buy stocks at lower prices. “The bottom is a solid bottom — most investors think that — and as we approach it people are happy to pick up the quality names on their bucket list,” said Willem Sels, global chief investment officer at HSBC Global Private Bank. “But we’re not expecting a V-shaped rally.”
In Asian equity markets, Hong Kong’s Hang Seng closed 0.4 per cent lower, having trimmed steeper declines earlier in the session. China’s mainland CSI 300 index closed down 0.3 per cent, while Japan’s Topix closed up 1.2 per cent.
At last week’s meeting in Jackson Hole, Powell said successfully reducing inflation would probably result in lower economic growth for “a sustained period”.
Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, told Bloomberg on Monday that he was “happy” to see markets lose ground following Powell’s speech because it indicated that investors had taken the Fed’s commitment to bring inflation back to 2 per cent seriously.
In debt markets, following Monday’s holiday in the UK, the yield on the 10-year gilt added 0.14 percentage points to 2.74 per cent. Bond yields rise as their prices fall.
US and eurozone government bonds were relatively steady, after coming under pressure in the previous session. The policy-sensitive two-year US Treasury note had at one point on Monday hit its highest level since 2007.
In commodities, European gas prices steadied following a sharp drop on Monday after Germany’s economy minister Robert Habeck said Europe’s largest economy was on course to hit its storage targets for winter. Futures contracts linked to TTF, the region’s wholesale gas price, traded at €267 a megawatt hour on Tuesday.
UK gas prices fell sharply on Tuesday after a one-day break in trading, sliding by about a fifth to just below 500p per therm.
The German baseload power price also slipped back, sliding 14 per cent to €651 a megawatt hour after topping €1,000 on Monday.
Investors will scrutinise fresh data in the coming days for further clues about the health of the global economy and the future path of monetary policy. Eurozone inflation data are due for release on Wednesday, with economists polled by Reuters expecting August’s figure to reach 9 per cent, up from 8.9 per cent in July.
US jobs numbers due on Friday may offer insights into the level of heat in the labour market of the world’s biggest economy. Economists polled by Reuters expect non-farm payrolls data to show the US added 300,000 new jobs in August, down from 528,000 in July.
Additional reporting by William Langley in Hong Kong
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