World shares bounce as bulls fight back after brutal October

London — Stock markets bounced higher on Wednesday, bringing some relief after a brutal October in which equities  suffered one of their worst drops in a decade and spooked investor confidence.

US-China trade tensions, concerns about global growth and higher US interest rates and fears that corporate earnings are peaking have combined to shake financial markets in October, leaving most major markets in negative territory for the year.

This has spurred predictions that an almost decade-long bull-market has run its course.

Data overnight showing that China’s factory growth slowed to its lowest in two years has reinforced worries about weakening growth stemming from the trade conflict with the US, and followed disappointing eurozone growth data published on Tuesday.

Investors rushed into the dollar, sending it to a 16-month high while the offshore Chinese yuan was left to nurse another 22-month low.

A batch of positive earnings set a firmer tone for European stocks on Wednesday, although pan-European indices are headed for their weakest month since August 2015.

The leading eurozone stock index was up 1.5% in early trading, with the pan-European STOXX 600 up 1.4% and Germany’s DAX 30 up 1.3%. Britain’s FTSE 100 increased 1.4%. The gains follow Asia, where the MSCI’s broadest index of Asia-Pacific shares outside Japan rose 1.4%, drawing support from gains on Wall Street.

‘More downside’

The MSCI world equity index, which tracks shares in 47 countries, rose 0.6% but remains down 8.2% in October, its worst month since 2012. The index is down 13% from all-time highs hit in January.

“Ultimately, I’m still of the belief that we are in for more downside and rallies are for selling, but squeezes in bear markets are not normally comfortable affairs,” said Neil Campling, co-head of the global thematic group at Mirabaud Securities. “I think a two to three day battle towards the top of the downtrend. Then we can return to the bigger picture — the mid-terms [US elections], trade wars, rates etc, once a few shorts have been taken out of the tape.”

Fresh concerns over growth in Asia and the eurozone come as the US economy continues to look in healthier shape, spurring fresh demand for the dollar. The greenback, measured against a basket of currencies, scaled a fresh 2018 peak on Wednesday, while the euro laboured near $1.1352, recovering slightly from losses earlier in the week.

“Eurozone growth figures have been disappointing and the Bank of Japan is striking a dovish stance at a policy meeting today so there is more room for the dollar to gain from current levels,” said Paul Bednarczyk, director of G10 FX at Continuum Economics based in London.

China’s offshore yuan fell to a fresh 22-month low of 6.9795. In onshore markets it was flat at 6.9673 to the dollar but remained near a decade low brushed on Tuesday. The Chinese currency was on track for a loss of 1.4% in October, its seventh straight monthly loss, the longest such losing streak on record. 

The Australian dollar fell 0.3% while the yen was flat at ¥113.12 to the dollar, a three-week low.

Oil prices recovered as markets braced for the imposition of US sanctions on Iran next week, after dropping to multi-month lows the previous day. US crude futures rose 0.92% to $66.79 a barrel after dropping to $65.33 on Tuesday, the lowest since mid-August.

Brent crude gained 1.11% to $76.75 after a decline of 1.8% on Tuesday.

Reuters