A MOOD of guarded optimism spread through US and European equity markets yesterday as confidence was buoyed by positive newsflow on sovereign risk and some encouraging corporate earnings news.
Gold’s rise to a record high, along with renewed pressure on the euro, underlined that genuine fears about a euro zone debt default continued to bubble under the surface. But Spain’s announcement yesterday of tough public spending cuts to rein in the country’s budget deficit helped alleviate worries about contagion from the Greek crisis.
“Investors are keenly watching for European economies to spell out how they are going to fix their leaking roofs to maintain recovery efforts,” said Giles Watts, head of equities at City Index.
The mood was further helped by news that Portugal had successfully auctioned €1 billion of 10-year bonds.
And the positive news continued as data showed the euro zone economy expanding by 0.2 per cent in the first quarter of the year – slightly more than expected – after stagnating in the final quarter of 2009.
Carsten Brzeski, economist at ING, said second-quarter growth should also be good – although he warned that the outlook beyond the “spring sprint” was less rosy. “Against great odds, the euro zone recovery continues,” he said. “However, with fiscal consolidation and strong export-dependency, the recovery will remain two-speeded.”
Meanwhile, the formation of a coalition government by the UK Conservatives and Liberal Democrats provided further encouragement to those looking for signs of reduced sovereign risk in Europe.
But sterling lost early gains as a dovish quarterly inflation report from the Bank of England encouraged the view that UK policy would not be tightened any time soon. The pound ended the European session 0.5 per cent lower against the dollar.
Elsewhere in the currency markets, the euro fell to within a cent of last week’s 14-month low against the dollar before rallying to stand little changed against the US currency.
Equities had a strong session on both sides of the Atlantic. By midday in New York, the SP 500 was up 0.9 per cent, while the pan-European FTSE Eurofirst 300 index rose 1.3 per cent.
Asian stocks were less sanguine, with the Nikkei 225 in Tokyo down 0.2 per cent.
In Dublin, the Iseq index moved higher with gains across the board, though financial stocks were among the biggest beneficiaries. The Iseq closed up more than 1 per cent on the day.
US and German government bonds were steady as their peripheral euro zone counterparts saw fresh gains. – (Copyright The Financial Times Limited 2010)
