December 9, 2022

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Britain's tax slump sent stocks and sterling rebounding

Britain’s tax slump sent stocks and sterling rebounding

  • Britain scrapped a small part of the tax plan; relieved markets
  • The Reserve Bank of Australia surprises with a slight rise
  • VIX height; Credit Suisse’s slipping point into the nerves below it

SYDNEY (Reuters) – Asian shares rebounded on Tuesday after Britain scrapped parts of a controversial tax-cut plan, leading to an initial improvement in global market sentiment and a rebound in bonds and the pound.

Adding to this relief in the markets, the Reserve Bank of Australia surprised investors by raising interest rates by 25 basis points less than expected, saying they had already risen significantly. .

This sent the Australian dollar lower, lifting the S&P/ASX 200 (.AXJO) by 3.6% and stimulated the benchmark 3-year bond to have its best day in 13 years.

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Trade weakened by holidays in China and Hong Kong, MSCI’s broadest index of Asia Pacific shares outside Japan (MIAPJ0000PUS.) It rose 1.7%, led by gains in Australia.

British stocks looked poised for a rebound, with FTSE futures up 0.8%.

“In the short term it looks a bit oversold,” said Jeff Wilson, chief investment officer at Wilson Asset Management in Sydney.

“Is this the bottom? It’s almost impossible to pick the bottom, but I don’t think so,” he said, generally referring to the markets.

Japan’s Nikkei Index (.N225) It rose by 2.8%. Sterling drifted to an almost two-week high of $1.1343, now rebounding nearly 10% from last week’s record low after plans for unfunded tax cuts unleashed havoc on British assets.

“The shift … will not have a significant impact on the overall financial situation in the UK in our view,” said John Briggs, Head of Economics and Markets Strategy at NatWest Markets.

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“(But) investors took this as a sign that the UK government can and is at least partially willing to back down from its intentions that have turbulent markets over the past week.”

Investors also drew enthusiasm from the stability at the long end of the gold market, although emergency purchases from the Bank of England were relatively modest.

S&P 500 futures rose by 1% after the index rebounded by 2.6% (.SPX) Overnight.

British Chancellor of the Exchequer Kwasi Quarting issued a statement reflecting the planned tax cuts for high-income earners. It makes up just 2 billion of the £45 billion in unfunded tax cuts that sent the gold market crashing last week.

Cosby in South Korea (.KS11) It rebounded 2.5%, off a two-year low last week, despite North Korea firing a missile over Japan for the first time in five years.

Stirling Bounce

Sterling’s recovery has settled some nerves in the currency market, although the continued strength of the dollar still holds many major currencies near their lows and authorities across Asia are on edge.

The Japanese yen hit 145 to the dollar on Monday – a level that prompted the official intervention last week – and was last at 144.71. The euro was at $0.9838, about three cents stronger from last week’s 20-year low.

Chinese authorities have embarked on maneuvers to support the yuan, ranging from unusually strong market signals to administrative measures that raise the cost of short selling.

“More volatility is almost guaranteed as currency markets refocus on US recession risks, which continue to grow,” said Miles Workman, chief economist at ANZ, with US jobs data on Friday the next major data point on the horizon.

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The Australian dollar fell to $0.6451 after the central bank meeting. The Reserve Bank of New Zealand meets on Wednesday and the New Zealand dollar settled just above $0.57.

Treasuries rose in sympathy with UK Treasuries overnight and the benchmark 10-year yield fell by 15 basis points. It was flat in Asia at 3.62%, after rising briefly above 4% last week.

Other indicators of market pressure abound. CBOE Volatility Index (.VIX) Still high and more than 30. Shares (CSGN.S) Credit Suisse bonds hit their lowest levels on Monday as concerns swept the markets over the bank’s restructuring plans.

Overnight, oil held on to gains on news of potential production cuts, and Brent crude futures rose 43 cents to $89.29 a barrel.

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Editing by Sam Holmes

Our criteria: Thomson Reuters Trust Principles.