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Tuesday 21.05 GMT. Global stock markets rebounded after a wobbly start to the week, pushing the S&P 500 back above the 1500 mark, as a batch of better-than-expected earnings and news of Dell’s $24bn buyout boosted investors’ appetite for growth assets.
Confirmation that private equity mega-deals are back sent Dell shares up 1.1 per cent and helped push Wall Street benchmarks higher after a sell off on Monday on renewed eurozone fears.
News that hiring in the US service sector rose to a near-seven-year high in January was also a positive development for growth-sensitive products. Investors also welcomed a better 2013 earnings forecast by companies such as Computer Sciences, which jumped 10 per cent.
Commodities were firmer, with copper up 0.2 per cent to $3.77 a pound and Brent crude briefly retaking the $117 a barrel level, while perceived havens are losing cachet. Yields on the 10-year Treasury note rose 5 basis points to 2.01 per cent, while gold fell $2 to $1,672 an ounce.
The FTSE Eurofirst 300, which lost 1.5 per cent on Monday, closed 0.3 per cent higher, while Wall Street’s S&P 500 -- which shed 17.5 points in the previous session -- rose 1 per cent and closed at 1511.
The FTSE All-World equity index rose just 0.3 per cent, however, held back by a 1.4 per cent retreat for the Asia-Pacific region.
The All-World had begun Monday’s session at a four-and-a-half-year high, reflecting building optimism about prospects for the global economy given recent improving US, China and, to a lesser extent, European data.
Traders have also been generally pleased about the corporate earnings season, while the ongoing budget wrangling in Washington has moved out of focus for the time being. Ultra-accommodative monetary policy from the world’s major central banks is also seen as supporting investors’ appetite for risk.
Another important factor boosting sentiment has been the decline over recent months in fretting about the eurozone fiscal crisis, as highlighted by the grind lower in implied borrowing costs for Italy and Spain and the euro’s move to 14-month highs above $1.37.
UK government bonds are underperforming US and German peers – but for a good reason. The yield on 10-year benchmark gilts is up 4 basis points to 2.12 per cent – earlier touching 2.14, the highest since April – after the purchasing managers’ index of service sector activity in January came in stronger than expected. The survey reduces the chances of more Bank of England quantitative easing, reckon traders. This view is not helping to support the pound, however, which is off 93 pips at $1.5668, a new five-month low.
But the market’s eurozone entente cordiale looked to have fractured on Monday after political concerns resurfaced in Italy and Spain, raising fears that both fiscally-strapped nations would have difficulty addressing their budget deficits.
Still, like equities, the euro tried to regain its footing on Tuesday. An early slip to $1.3460 was reversed and the single currency rose 0.5 per cent on the day to $1.3578, helped by news that a composite of eurozone business activity rose to a 10-month high in December.
“Better data from Europe has made investors less risk averse, weighing modestly overall on the greenback,” said Joe Manimbo, senior market analyst at Western Union Business Solutions.
Yields on Spanish and Italian bonds remain significantly below the levels seen in the middle of last year but held near to recent highs following Monday’s surge. Madrid’s 10-year yields eased 2 basis points to 5.37 per cent, close to the most since mid-December, while Rome’s fell 2bp to 4.45 per cent.
The big question for traders at the start of Tuesday was whether the latest eurozone squall heralded a market turn or represented little more than an opportunity for some “healthy” profit-taking during an ongoing bull run for so-called risk assets.
“Markets have been increasingly comfortable with European risks over the past few months and are largely not positioned for this increase in political problems,” analysts at Barclays said in a research note. “The outcomes in Spain and Italy are far from certain and may represent stumbling blocks for further expansion in risk appetite.”
Additional reporting by Jamie Chisholm in London
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