An apparent calming of Italy’s political crisis has led a recovery in global stock markets overnight.
There was a renewed attempt by Italy’s Five Star Movement party to form a coalition government, and calls for eurosceptic economist Paolo Savona to withdraw his candidacy as economy minister.
Fears of Italy exiting the shared euro currency had caused investors to pile into safety assets yesterday. This led to a surge in US Treasury yields, but sharp losses in US and European stock markets.
The Italian government’s successful auction of five-year and 10-year bonds also eased concerns about the country’s ability to finance itself, after a sell-off in bonds on Tuesday resulted in the biggest one-day surge for two-year yields in 26 years.
“The risk of Italy leaving the euro is remote,” said Kate Warne, investment strategist at Edward Jones in St. Louis.
“It’s a source of volatility but not a source of true concern for the financial markets.”
But Commonwealth Bank’s chief currency strategist Richard Grace is a little more pessimistic.
“It is important to understand that the Italian political situation is not resolved and participants should prepare for more uncertainty and potential financial market stress as a result of this,” he said.
The Dow Jones index jumped 306 points, or 1.3 per cent to 24,668 â€” a strong gain, but not quite enough to erase yesterday’s sell-off.
The S&P 500 lifted 1.3 per cent, and the Nasdaq gained 0.9 per cent.
There was a similar pattern in European markets, particularly Germany (+0.9pc), Italy (+2.1pc) and the UK (+0.75pc), which also closed sharply higher.
“The market is reversing what appears to be a knee-jerk reaction from yesterday,” said Keith Lerner, chief market strategist at SunTrust Advisory Services
“As people take a step back, it appears that the sell-off was overdone.”
Energy stocks were the best performers in the US, driven by a surge in oil prices.
The price of Brent crude rose 2.7 per cent $US77.43 dollars a barrel.
In addition, Microsoft has overtaken Google’s parent company Alphabet as the third most valuable company in the world.
The technology company, founded by Bill Gates and Paul Allen, is currently worth $US760 billion, versus Alphabet’s $US745 billion.
However, it remains well behind the top two, Apple ($US921b) and Amazon ($US788b).
The Australian dollar made strong gains against major currencies overnight.
It rose against the US greenback (+0.9pc), Japanese yen (+1.1pc) and British pound (+0.7pc), but was steady against the euro.
The strength of the local currency follows the release of the May forecast on Australia’s economy by the Organisation for Economic Co-operation and Development (OECD).
“The economy will continue growing at a robust pace, around 3 per cent,” the OECD wrote.
“Business investment will pick up, with exports boosted as new resource sector capacity comes on stream.”
CBA’s Richard Grace said another reason for the Australian dollar surge is “global market sentiment improv[ing] on the easing in Italian political tensions.”
In economic news, the March-quarter private capital expenditure figures will be released today, and private sector figures for March.
ANZ’s Martin Whetton said, “Today the local focus will be on private capital expenditures where we see the headline number coming in below expectations.”