Britain’s tax reversal bounces stocks and sterling

SYDNEY, Oct 4 (Reuters) – Asian stocks rebounded on Tuesday after Britain scrapped parts of a controversial tax cut plan, tentatively improving global market sentiment and rallying bonds and the pound.

Australia’s central bank added to that sense of relief in markets, surprising investors by raising interest rates 25 basis points lower than expected, saying they had already risen substantially. .

That pushed the Australian dollar lower, lifted the S&P/ASX 200 Index (.AXJO) by 3.6% and propelled benchmark 3-year bonds to their best day in 13 years.

In holiday-reduced trading in China and Hong Kong, MSCI’s broadest index of Asia-Pacific stocks outside of Japan (.MIAPJ0000PUS) it rose 1.7%, led by gains in Australia.

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

“It looks like in the short term it’s a bit oversold,” said Geoff 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, referring broadly to the markets.

japan nikkei (.N225) rose 2.8%. Sterling rose to a nearly two-week high of $1.1343, now rebounding nearly 10% from the all-time low hit last week after unfunded tax cut plans triggered chaos. in British assets.

“In our view, the change in attitude … will not have a huge impact on the overall fiscal situation in the UK,” said John Briggs, director of economics and markets strategy at NatWest Markets.

“(But) investors took it as a sign that the UK government could and is at least partially willing to back down from its intentions that hit markets so hard last week.”

Investors were also encouraged by stability at the long end of the gilt market, despite relatively modest Bank of England emergency purchases.

S&P 500 futures rose 1%, following a 2.6% rebound in the index (.SPX) overnight.

British Finance Minister Kwasi Kwarteng issued a statement reversing planned tax cuts for top earners. It constitutes just £2bn of the expected £45bn of unfunded tax cuts that had sent the gilt market into a tailspin last week.

Kospi from South Korea (.KS11) it rebounded 2.5%, moving away from last week’s two-year low, despite North Korea firing a missile at Japan for the first time in five years.

STERLING REBOUND

Sterling’s recovery has calmed some nerves in the currency market, though the dollar’s persistent strength still keeps many major currencies near record lows and has policymakers across Asia on edge.

Japan’s yen hit 145 per dollar on Monday, a level that prompted official intervention last week, and was last at 144.71. The euro was at $0.9838, about three cents higher than last week’s 20-year low.

Chinese authorities have implemented maneuvers to support the yuan that range from unusually strong signals to the market to administrative measures that raise the cost of selling it short.

“More volatility is almost certain to be assured as currency markets refocus on US recession risks, which continue to rise,” ANZ senior economist Miles Workman said with the data from US employment on Friday as the next big point on the horizon.

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

Treasuries rose in sympathy with gilts overnight and the benchmark 10-year yield fell 15 basis points. It was flat in Asia at 3.62%, having briefly topped 4% last week.

Other indicators of market stress abound. The CBOE Volatility Index (.VIX) remains elevated and above 30. Stocks (CSGN.S) and Credit Suisse bonds hit record lows on Monday as concerns about the bank’s restructuring plans swept through markets.

Oil held gains overnight on news of possible production cuts, with Brent futures rising 43 cents to $89.29 a barrel.

Edited by Sam Holmes

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