London — Forecast-beating US company earnings improved the mood on world equity markets on Wednesday, as Asian and European shares put aside concerns on global growth and trade and took their cue from Wall Street’s best one-day rise in eight months.
While the dollar’s mini-bounce off two-week lows checked emerging-market gains, they were supported by easing tension between Saudi Arabia and the US, as well as signs that Turkey’s currency crisis had been laid to rest.
A pan-European equity index rose 0.15% to a one-week high. Earlier, MSCI’s ex-Japan share index added 0.6% while Japan’s Nikkei jumped 1.3%.
The gains follow a scintillating New York session where the three major indices tallied their biggest one-day percentage gains since March, rising more than 2% each. They are set for another strong session, equity futures signalled.
All this marks a partial recovery from a recent pullback that saw the S&P 500 index post its biggest weekly drop since March.
While many investors are doubtful that the recent volatility is over, they also hope another strong quarter of corporate profits will calm nerves jangled by trade tension and rising bond yields. Third-quarter earnings for S&P 500 companies are seen growing 21.8%, according to I/B/E/S Refinitiv.
“There are negative risks in the short term, but on the positive side we have good earnings and data from the US,” said Christoph Barraud, an economist at Paris-based brokerage Market Securities.
“Last week’s correction was extreme, a lot of people became short (the market) so this is a bit of normalisation.”
The latest gains were triggered by Netflix, which shot 12% higher after the close as its results beat market expectations. That sent shares of Alphabet, Facebook and Amazon.com up about 1% in extended trade.
The four make up the so-called FANG group of high-growth companies, which in recent months has lost some of its momentum following market-leading gains in recent years.
Banking giants Goldman Sachs and Morgan Stanley also posted better-than-expected quarterly profits. And on the data front, US industrial production rose for a fourth straight month in September, soothing fears the economy may be running out of steam.
Barraud said the outperformance of US equities was likely to continue.
“People want to put money where there is best visibility … In the US, you have growth visibility, strong earnings (as well as) buybacks and dividends … So the US is still attractive compared to peers,” he said.
MSCI’s global equity index touched a one-week high . The 47-country benchmark rose a 0.25% after enjoying its biggest one-day gain since mid-2016 on Tuesday, with a rise of 1.7%.
Dollar and emerging markets
The more cheerful mood also favoured emerging-market currencies and took some steam out of the safe-haven yen. The latest investor survey by Bank of America Merrill Lynch found fund managers now considered emerging-market currencies the most undervalued to date against the US dollar.
Turkey’s lira is trading just off two-and-a-half month highs, having rallied 10% over the past week as the release of an imprisoned US pastor fuelled hopes of a rapprochement with Washington. Ankara said investors had put in $6bn in bids for $2bn of bonds it sold on Tuesday, though it had to pay a substantial new-issue premium.
Saudi stocks and currency also stabilised after US President Donald Trump gave Saudi Arabia the benefit of the doubt in the disappearance of dissident journalist Jamal Khashoggi.
But MSCI’s emerging currency index eased off two-and-a-half-week highs, losing steam as the dollar firmed. Emerging equities also eased off earlier session-highs.
The dollar rose 0.15% against a basket of currencies after being undermined on Tuesday by renewed criticism of the US Federal Reserve by Trump. He told Fox Business Network: “My biggest threat is the Fed.”
“While such name calling shouldn’t mean anything in terms of what the Fed actually does, it is a factor which somewhat undermines sentiment towards the dollar,” Ray Attrill, head of currency strategy at National Australia Bank, said.
Minutes of the last Fed meeting are due out later Wednesday and should show it committed to further tightening.
On oil markets, Brent crude futures rose 0.4% for a fourth day of gains after data showed falling US crude inventories. There are also risks of supply disruptions caused by sanctions on Iran and tensions with Saudi Arabia.