Wall Street stocks rallied and European equities bounced back from their lowest level in a year as energy prices eased and traders bet on EU leaders taking action to prevent a recession caused by Russia’s invasion of Ukraine.
Renewed risk appetite lifted the US’s broad-based S&P 500 2.5 per cent higher, on track to snap a four-session losing streak after it closed the previous session at its lowest level since June 2021. The tech-heavy Nasdaq Composite share index rose 3.1 per cent.
In Europe, the Stoxx 600 closed 4.7 per cent higher — its best single-day rise since March 2020 — as traders bet on EU policymakers moving to safeguard the bloc’s economies from the fallout of the war in Ukraine. The regional gauge had also fallen in the past four sessions as investors weighed the broader potential impact of western sanctions on Russia. Germany’s Xetra Dax jumped 7.9 per cent, having entered a bear market, defined as a 20 per cent drop from a recent peak, earlier in the week.
Sentiment about the prospects for the eurozone, which faces a risk of recession from spiralling commodity prices, has shifted ahead of an EU summit on Thursday when leaders will discuss a new growth and investment model and reducing dependence on Russian energy.
“There are expectations Europe is going to do something massive,” said Gergely Majoros, investment committee member at asset manager Carmignac. “We don’t know what is going to be decided,” he added, but the fact EU leaders were set to “even talk about” an integrated response was “supportive”, he said.
Hopes about avoiding a recession in Europe had “really helped rejuvenate some form of risk-on environment on global stock markets,” said Aneeka Gupta, research director at exchange-traded fund provider WisdomTree.
The euro, which has weakened steadily against the dollar since Russia’s president Vladimir Putin sent troops into Ukraine late last month, rose 1.3 per cent to $1.10. The Stoxx sub-index of European banking shares rose 7.5 per cent, although it remained 9 per cent lower for 2022 so far.
Haven assets fell. The dollar index, which measures the greenback against six other currencies, dropped 1.1 per cent. The spot gold price fell 2.5 per cent to $2,001 a troy ounce.
Analysts believe the European Central Bank, which holds its monetary policy meeting on Thursday, may delay plans to withdraw emergency stimulus measures put in place to counter the financial shocks wrought by coronavirus two years ago.
But prices of eurozone government bonds softened, reflecting speculation about the bloc’s strongest nations funding extra EU borrowing. The yield on Germany’s 10-year government bond added 0.1 percentage point to 0.22 per cent as its price fell.
The yield on the 10-year US Treasury note, a barometer for borrowing costs worldwide, added 0.05 percentage points to 1.92 per cent.
Elsewhere, energy prices dropped after strong gains in recent weeks driven by concerns about sanctions choking off supplies. Futures linked to TTF, Europe’s wholesale gas price, fell more than a quarter to €148 a megawatt hour. A year ago these contracts traded at about €16.
Brent crude, the international oil benchmark, fell 6 per cent to $120 a barrel. While US president Joe Biden declared a ban on Russian oil and gas imports on Tuesday, Brent remained more than a fifth above its level of February 23, the day before Russia invaded its neighbour.
Asian equity markets mostly ended Wednesday lower. Hong Kong’s Hang Seng index dropped 0.7 per cent and the Nikkei 225 in Tokyo fell 0.3 per cent.