Gains in Italian bonds, equities restore a degree of calm to battered global stocks

Swiss franc edges away from almost two-week highs against dollar

World stocks nudged higher yesterday, as focus turned to earnings season and a rebound in Italian assets helped battered equities find firmer ground for now.

European shares rallied 0.8 per cent, pulling away from Monday’s 22-month lows. That followed gains in some Asian markets, led by Japan’s blue-chip Nikkei index, which closed 1.25 per cent higher after a decline of nearly 2 per cent the previous day.

The positive tone looked poised to extend into the US session, with stock futures trading higher. Gains in Italy’s bond and stock markets after Italian Economy Minister Giovanni Tria defended the country’s expansionary budget helped lift sentiment.

Calm in Italy — a major source of turbulence in world markets in recent weeks — helped explain the recovery in risk appetite yesterday, said Marchel Alexandrovich, European financial economist at Jefferies in London.

Stock market sentiment in Europe also got a boost from expectations that earnings season will deliver double-digit earnings growth for the third quarter.

Europe earnings

About 6 per cent of companies in the STOXX 600 index are due to report results this week, with the earnings season passing its mid-point during the first week of November.

Overall, third-quarter earnings for the index are expected to have risen 14 per cent, according to Refinitiv I/B/E/S data, while eurozone earnings are seen up 12 per cent. That compares with the 21.6 per cent growth seen for US companies.

“If you look at what’s happening here and now, it is an improvement from what was happening a week ago,” Alexandrovich said. “How long the stability lasts is anyone’s guess.” ■

Calmer equity markets took the shine off safe-haven assets.

Japan’s yen was down a quarter of a per cent against the dollar, the Swiss franc edged away from almost two-week highs against the greenback.

Wall Street

On Wall Street, the Dow has lost 4.5 per cent this month, as long-term Treasury yields soared to their highest level since 2011. Higher yields make equities less attractive.

Chinese stocks closed lower yesterday after data showed factory-gate inflation had cooled for a third straight month in September amid weaker domestic demand, reflecting more pressure on the world’s second-biggest economy. “Looking forward, a couple of key points that may drive where markets go is the direction of US Treasury yields and US earnings season,” said Investec economist Ryan Djajasaputra.

Meanwhile, German investor morale darkened more than expected in October, a survey showed yesterday, as concerns about an escalating Sino-US trade dispute and Britain crashing out of the EU without a divorce deal clouded the outlook for Europe’s largest economy.

Italian government bond yields fell as much as 15 basis points across the curve, narrowing

Switzerland’s currency weakened to 0.9878 francs per dollar after advancing 0.5 per cent the previous day.

The euro was steady at $1.15840, while sterling gained 0.5 per cent against the dollar and the euro after British labour data beat expectations.

There was some focus was on the US Treasury’s semiannual currency report due this week, with investors waiting to see Washington’s view on China after media reports last week that it has not labelled Beijing a currency manipulator.