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Tuesday, February 7, 2023
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Stocks extend rally ahead of fresh flurry of US earnings

Stock markets extended their gains on Tuesday, as the UK’s U-turn on planned tax cuts bolstered sentiment ahead of a fresh batch of Wall Street corporate earnings.

Europe’s regional Stoxx 600 added 0.6 per cent in early London trading. Hong Kong’s Hang Seng rose 1.4 per cent, while futures contracts tracking the S&P 500 advanced 1.4 per cent. Those tracking the Nasdaq 100 gained 1.6 per cent.

Those gains in equity markets followed a sharp rally in the previous session, with the S&P closing 2.7 per cent higher on Monday — supported by Bank of America posting better than expected third-quarter results. BoA attributed its earnings to “resilient” US consumers.

On Tuesday, attention will turn to closely watched reports from Wall Street bank Goldman Sachs, streaming group Netflix and consumer and pharmaceuticals giant Johnson & Johnson.

Investors have been monitoring companies’ latest financial statements for signs of pressure from high inflation and rising borrowing costs, as central banks around the world tighten monetary policy aggressively to curb rapid price growth. Concerns have intensified that the US Federal Reserve and its peers will raise interest rates, prompting a protracted slowdown.

The Fed has led the charge on raising interest rates, with increases of 0.75 percentage points at each of its previous three meetings — taking its target range to 3-3.25 per cent. The central bank is expected to implement another three-quarter-point rise in November.

The strong start to the week for equity markets also came as new British chancellor Jeremy Hunt abandoned most of his predecessor Kwasi Kwarteng’s “mini” Budget measures, which had spooked markets and sparked a fire sale of pension fund assets.

On Monday, Hunt abandoned two-thirds of the £45bn of unfunded tax cuts set out by Kwarteng in September, while Truss apologised for the chaos, saying the government went “too far, too fast” in an interview with the BBC.

“The UK news has again seemed to heavily influence global markets over the last 24 hours after the UK government officially announced one of the biggest U-turns in political history and ditched the bulk of what remained of their mini-budget,” wrote Jim Reid, a strategist at Deutsche Bank.

“However the risk momentum was also helped by a view that earnings season has starting relatively well versus beaten up expectations.”

After a rally on Monday in response to Hunt’s comments, UK assets took pause on Tuesday. The pound slipped 0.1 per cent against the dollar to trade at $1.133. Gilts were relatively steady, with the yield on the benchmark 10-year UK bond flat at 3.97 per cent and the 30-year yield down 0.02 percentage points at 4.36 per cent.


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