March 7, 2021

Global Stocks Rebound

Investors were encouraged by the German Constitutional Court’s rejection of challenges that aimed to block German participation in bailouts for other countries in the euro area. But it said future financial rescues must be approved by Parliament’s budget committee.

The ruling is bringing relief to financial markets, said Carsten Brzeski, an analyst at ING in Brussels, “as a total chaos scenario has been avoided.”

But he warned against “euphoria” at the development.

“A bigger say for the German Parliament in future bailouts could easily find copycats in other euro zone countries, undermining the clout of the beefed-up” European bailout fund, he said.

“I wouldn’t overplay the German decision,” Andrew Milligan, head of global strategy at at Standard Life Investments in Edinburgh, said.

There was some relief in the markets because the announcement “removed one hurdle to an overhaul of the European problem,” he said, “but it is still extremely uncertain how the overall situation will play out.”

He added that it is unlikely that bonds of the non-core euro-zone members would pick up much momentum from the court decision.

“You might still want to hold German bonds,” he said, “but do you really want to hold other European bonds?”

Even before the ruling, European stocks were higher, helped by bargain hunters after the recent slide as well as news that German industrial production rose 4 percent in July from June, far better than market expectations for a 0.5 percent gain.

A late recovery in stocks on Wall Street Tuesday and expectations that President Barack Obama would use a speech Thursday to announce significant steps to revitalize the labor market also helped sentiment.

“The market is perhaps due for a relief rally after some sharp declines since last Friday,” said Colin Tan, an analyst at Deutsche Bank.

In afternoon trading, the Euro Stoxx 50 rose 2.2 percent, although it is still down more than 20 percent for the year. In London, the FTSE 100 index rose 1.7 percent.

Standard Poor’s 500 index futures rose, indicating U.S. markets will start with a rebound from three days of losses.

The Nikkei 225 index in Japan, which closed at its weakest level since April 2009 on Tuesday, recouped some of the previous session’s losses with a rise of 2 percent.

The Japanese central bank kept interest rates unchanged at their already ultra-low levels, and announced no new economic stimulus measures at the end of its policy meeting on Wednesday — though pressure for more action is mounting. In Australia the economy expanded by 1.2 percent in the second quarter from the previous period, against expectations of a gain of 1 percent.

In Australia, the S. P./ASX 200 closed 2.7 percent higher. The Hang Seng in Hong Kong closed up 1.7 percent, while the Shanghai composite index gained 1.8 percent.

Unexpectedly solid services sector data from the United States, released Tuesday, had helped set a more positive tone, for the U.S. market. Stocks on Wall Street fell, but the losses were modest by the close as some of the earlier losses were reversed. The Dow Jones industrial average dropped 0.9 percent, and the Standard Poor’s 500 index ended down 0.7 percent.

Still, analysts caution that investors will stay nervous, and markets volatile, as the euro zone debt crisis plays out and concerns about the pace of growth in the United States and Europe linger.

HSBC on Wednesday hammered home the point that global economic fundamentals are now significantly weaker than before.

The bank’s team of economists lowered their growth forecasts for this year and next, with particularly marked revisions for the developed world. They forecast that developed economies will expand just 1.3 percent this year, down from a previous projection of 1.8 percent.

Growth in emerging economies will likely hit 6.2 percent, rather than 6.3 percent, they said.

“The developed world has succumbed to economic permafrost,” the team, headed by the global economist Stephen King, wrote in its report. “The message is simple: despite massive policy stimulus, healthy economic recovery is now but a distant dream.”

The dollar was mostly lower against other major currencies. The euro rose to $1.4033 from $1.3998 late Tuesday in New York, while the British pound rose to $1.5987 from $1.5944. The dollar fell to 77.20 yen from 77.66 yen.

The dollar was also at 0.8580 Swiss franc, xxx from xxxx. The franc was hovering around 1.20 to the euro after the Swiss national bank on Tuesday surprised investors by saying it would seek to cap the Swiss franc’s value at that level — a move designed to cushion Swiss exporters from the impact of the currency’s strong rise in recent months.

David Jolly reported from Paris. Bettina Wassener contributed reporting from Hong Kong

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