Stock markets mostly rose yesterday as investors appeared willing to set aside fears of a worldwide recession, instead focusing on bargain hunting, analysts said.
They also seemed to largely shrug off political turmoil in Italy.
Global bond yields stabilised, indicating that markets are becoming less pessimistic about the outlook for the world economy.
Key European equity markets were more than one percent higher by the mid-afternoon. That included Milan’s FTSE MIB index that rallied as Italian President Sergio Mattarella began talks with key players in a bid to end political limbo in the eurozone’s number three economy.
The index had dived 1.1 per cent on Tuesday after the shock resignation of Prime Minister Giuseppe Conte.
US stock markets also made a better start, “aided by some stabilisation in global bond yields which had plunged recently to exacerbate market uneasiness and growth concerns”, said Charles Schwab analysts.
The euro flatlined against the dollar as Italy’s crisis offset optimism that Germany’s government could unveil measures to avert a downturn.
Conte resigned this week, hitting out at far-right Interior Minister Matteo Salvini for pursuing his own interests by bringing down the government coalition.
President Sergio Mattarella must now decide to form a new coalition or call an election, throwing up more uncertainty and another possible budget standoff with the European Union.
“It is not clear whether or not the President will try and put a caretaker government in place at first – though it seems likely that Salvini will be given the reins sooner or later,” Rabobank analyst Jane Foley told AFP.
“The confusion, combined with Salvini’s spending pledges, is potentially a negative factor” for the European single currency, she added.
VTB analyst Neil MacKinnon was more downbeat. “There is an increasing risk of a fresh eurozone debt and banking crisis,” he cautioned.
Investors’ focus was starting to turn to a key speech by Federal Reserve boss Jerome Powell at the end of the week.
Powell’s talk at the central bankers’ gathering in Jackson Hole, Wyoming, is the key event and will be closely pored over for clues about the bank’s plans for next month, with experts unable to agree on whether or not he will announce further cuts.
Rising hopes for China-US trade talks have provided a much-needed lift to markets over the past two days, but with few fresh catalysts, dealers are keeping their powder dry ahead of Friday’s address.