The FTSE 100 surged on Tuesday as bargain hunters stepped in to pick up beaten down stocks after a strong session in the US overnight.
The FTSE 100 flew back through 7,000 to trade as high as 7,040 around midday on Tuesday.
“US markets finally got something to cheer about in the first session of the fourth quarter. Both the S&P 500 and NASDAQ posted their biggest daily increases since August as US Treasury yields pulled back 0.18 percentage points,” said Matt Britzman, Equity Analyst at Hargreaves Lansdown.
However, Britzman warned while optimism is returning to markets, it may be short-lived.
“Whilst rallies in most global indices is certainly a welcome reprieve, underlying issues very much remain,” Britzman said.
Nonetheless, FTSE 100 blue chips that had been heavily hit since the mini-budget became the target of investors seeking out bargains.
Hargreaves Landsown was the top riser gaining 6%, while Entain, Melrose and Legal & General were all up over 5% higher.
Legal & General issued a trading statement on Tuesday and focused on the strength of their cash position and solvency. Legal & General shares had fallen sharply last week as investors fretted about their exposure to UK government bonds during high periods of volatility.
“It’s not often that Legal & General has to calm investors’ nerves, given it is meant to be a steady as she goes type of business. Its shares enjoyed a relief rally after reassuring the market that it hasn’t been a forced seller of gilts or bonds, and that it continues to have a good solvency coverage ratio,” said Danni Hewson, financial analyst at AJ Bell.
Slow interest rate hikes?
With a backdrop of rising prices and the threat of a recession, the large jumps in interest rates have been unnerving markets.
The Australian central bank hiked rates by 25bps overnight – a lower increase than expected – and raised the question of a near term peak in the global hiking cycle.
“The cash rate has been increased substantially in a short period of time,” said RBA Governor Philip Lowe in a statement.
If the Australian central bank’s decision and subsequent comments prove to be the beginning of a trend of central banks slowing the pace of hiking, it may begin to improve sentiment around the depth of any recession and bring investors back into equities.
However, inflation is still soaring in many countries and Australia is a somewhat insular economy compared those of Western Europe and the US.