European stocks and US stock futures are staging a strong rally

European stocks and US stock futures fell on Wednesday, halting a strong rally fueled by investors who bought shares on benign and weak economic data, easing fears of interest rate hikes.

The regional Stoxx 600 slipped 0.4 percent in early trade after closing 3.1 percent higher on Tuesday. Contracts tracking Wall Street’s benchmark S&P 500 fell 0.6 percent after the broadmeter also ended the previous session up 3.1 percent.

That move for the S&P took the broad gauge’s two-day gains to 5.7 percent — the strongest such rally since the depths of the coronavirus pandemic in April 2020 — as some analysts and investors identified bargaining opportunities after three consecutive quarters of losses.

The rally increased on Tuesday after the release of weaker-than-expected US jobs data, which showed job vacancies in the world’s largest economy fell to 10.1 million in August, below economists’ forecast of 10.8 million and the number of the previous month was 11.2 million.

Employment reports have been closely watched as an indicator of how far and how quickly the US Federal Reserve will tighten monetary policy to curb inflation, with stronger data fueling expectations of more aggressive action and weaker numbers quelling concerns about the magnitude of future rate hikes.

The drop reflected in Tuesday’s data is the largest drop in job vacancies since April 2020, said Ian Shepherdson, chief economist at Pantheon Macroeconomics. “This is the first official indicator that clearly, if not necessarily reliably, points to a significant slowdown [labour] support financially.”

Government bond prices fell on Wednesday after days of gains. The UK 10-year bond yield rose 0.08 percentage point to 3.95%, while 2-year monetary policy yields rose 0.13 percentage point to 4.04%.

The gilt market shook last week in response to Westminster’s ‘mini’ budget as investors feared the new chancellor’s proposed tax cuts and massive borrowing plans.

Selling pressure eased last Wednesday as the Bank of England intervened to calm the turmoil.

Treasury yields also rose on Wednesday as US debt prices fell, with the benchmark 10-year yield rising 0.06 percentage point to 3.68 percent.

The dollar, which has slipped in recent days as expectations for US borrowing costs have eased and stock markets have risen, is up 0.4 percent against a basket of six currencies. ING strategists said they “remain skeptical that the Fed will pivot this week on slightly weaker US data”.

Sterling slipped 0.5 percent to $1.142 against the dollar to return to trading levels ahead of Kwasi Kwarteng’s unveiling of the government’s financial plans.

Asian stocks trailed U.S. stocks higher on Wednesday morning, with the Hang Seng index gaining more than 6 percent as it reopened after a holiday. Elsewhere, Japan’s Topix rose 0.3 percent. European stocks and US stock futures are staging a strong rally

Adam Bradshaw

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