European stocks and US futures jumped on Tuesday, continuing a strong start to the new year for equity investors who remain anxious about high interest rates and the risk of recessions across the world.
The regional Stoxx Europe 600 gained 1.1 per cent, extending gains from an upbeat 2023 debut the previous day. London’s FTSE 100, which was closed on Monday, kicked off the year by rallying 1.2 per cent. Contracts tracking Wall Street’s benchmark S&P 500 and the tech-heavy Nasdaq 100 rose 0.4 per cent and 0.6 per cent respectively, ahead of the New York open.
The gains came in a trading session where fresh data showed German inflation slowed more than expected in December, with consumer prices increasing 9.6 per cent on the year, from 11.3 per cent in November. A survey by Reuters showed economists had expected a reading of 10.7 per cent.
“This is a big downside surprise,” said Claus Vistesen, chief European economist at Pantheon Macroeconomics. If such declines continue, that could take the pressure off the European Central Bank to keep cranking up interest rates. But Vistesen urged caution. “The fall adds to the evidence that inflation is now past its peak. But to the extent that this is driven partially by fiscal measures, amid rising core inflation, we can’t see how it provides much relief for the ECB.”
Still, the brighter tone in stocks formed a contrast with a dismal December, which is typically an upbeat month in global markets. In the US, the benchmark S&P 500 index fell close to 6 per cent and the Nasdaq Composite lost 8.7 per cent as officials at the Federal Reserve stressed that interest rates were unlikely to fall in 2023 despite slowing inflation. Overall, global stocks and bonds shed more than $30tn in the worst year for markets since the 2008 financial crisis.
On Tuesday, though, it was “a case of new year, new optimism, even if there’s nothing specific [investors] are going off”, said Neil Birrell, chief investment officer at Premier Miton.
“A big, big focus for people over the next few months is surety of returns — in equities that means things less sensitive to the economic cycle, or things looking cheap,” Birrell added. “The UK is a good example [of the latter].”
A eurozone inflation report due later in the week, along with a batch of US economic data, could help provide further clues on the direction of monetary policy in the two regions, investors said.
In currency markets, the dollar gained 1.1 per cent against a basket of six other currencies, though it has fallen almost 9 per cent from its September peak. The pound fell 0.5 per cent against the greenback to $1.197, while the euro slipped by 1 per cent to $1.054.
Nickel prices jumped higher on Tuesday, continuing an extended period of volatile trading since the market for the metal was plunged into chaos last March.
The benchmark three-month contract in London for the metal used in stainless steel and electric car batteries shot up on Tuesday as much as 4.9 per cent to $31,475 per tonne, versus an average of $15,000 per tonne in the years before the nickel market crisis.
Asian stocks rallied on Tuesday, with the Hang Seng index up 1.8 per cent on the day, taking its gains since the start of November to 37 per cent.
China’s CSI 300 index of Shanghai- and Shenzhen-listed shares added 0.4 per cent as the country continued to battle large outbreaks of Covid-19 following the relaxation of measures designed to slow the spread of the virus.
Additional reporting by Harry Dempsey in London
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