Britain’s fiscal retreat causes stocks and the pound to rebound

  • Britain eliminates a small part of the tax plan; lightened markets
  • The Reserve Bank of Australia surprises with a small increase
  • high VIX; The Credit Suisse stock slide points to the nerves below

SYDNEY, Oct 4 (Reuters) – Asian equities rebounded Tuesday after Britain scrapped parts of a controversial tax cut plan, temporarily improving global market sentiment and pushing bonds and the pound higher.

The Australian central bank reinforced that sense of relief in the markets, surprising investors by raising interest rates 25 basis points lower than expected, saying they had already risen substantially. .

This pushed the Aussie dollar lower, lifted the S & P / ASX 200 (.AXJO) index by 3.6% and spurred 3-year benchmark bonds to their best day in 13 years.

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In holiday-thinning trade in China and Hong Kong, MSCI’s broader Asia Pacific equities index outside Japan (.MIAPJ0000PUS) was up 1.7%, driven by gains in Australia.

UK equities looked set to rebound, with FTSE futures up 0.8%.

“It looks short-term, it’s a little oversold,” said Geoff Wilson, chief investment officer of Wilson Asset Management in Sydney.

“Is this the minimum? It is almost impossible to take the minimum, but I don’t think so,” he said, referring generally to the markets.

Japan’s Nikkei (.N225) was up 2.8%. The pound rose to a nearly two-week high of $ 1.1343, now rebounding nearly 10% from last week’s record low after plans for unfunded tax cuts wreaked havoc on British assets.

“The turnaround … will not have a huge impact on the overall UK fiscal situation, in our view,” said John Briggs, head of economic and market strategy at NatWest Markets.

“(But) investors took it as a signal that the UK government could and is at least partially willing to back off from its intentions that have so disrupted the markets over the past week.”

Investors also rejoiced at the stability in the long end of the gilt market, even though emergency purchases from the Bank of England were only relatively modest.

The S&P 500 futures they were up 1% after a 2.6% rebound for the index (.SPX) overnight.

British Finance Minister Kwasi Kwarteng has released a statement canceling the tax cuts planned for higher incomes. It constitutes just £ 2bn of the projected £ 45bn of unfunded tax cuts that rocked the gilt market last week.

South Korea’s Kospi (.KS11) rebounded 2.5%, moving away from last week’s two-year low, despite North Korea firing a missile on Japan for the first time in five years.

STERLING REFUND

The pound’s recovery has settled some nerves in the currency market, even as the dollar’s persistent strength still holds many of the major currencies near historic lows and pushes authorities across Asia to their limits.

The Japanese yen hit 145 per dollar on Monday – a level that required official intervention last week – and was the latest at 144.71. The euro was at $ 0.9838, about three cents higher than last week’s 20-year low.

Chinese authorities have launched maneuvers to support the yuan, ranging from unusually strong signals to the market to administrative measures that increase the costs of exposing it.

“More volatility is almost certainly assured as currency markets refocus on recession risks in the US, which continue to rise,” ANZ senior economist Miles Workman said, with US employment data on Friday. next important given on the horizon.

The Australian dollar fell to $ 0.6451 after the central bank meeting. The Reserve Bank of New Zealand meets on Wednesday and the kiwi held just above $ 0.57.

Treasuries rallied in sync with gilts overnight and the 10-year benchmark yield dropped 15 basis points. It remained stable in Asia at 3.62%, after briefly exceeding 4% last week.

More market stress indicators in sight. The CBOE Volatility Index (.VIX) remains high and above 30. Credit Suisse shares (CSGN.S) and bonds hit record lows on Monday as concern over the bank’s restructuring plans overwhelmed the markets.

Oil held gains overnight on news of possible production cuts and Brent futures rose 43 cents to $ 89.29 a barrel.

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Montage by Sam Holmes

Our Standards: Thomson Reuters Trust Principles.

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