Britain scraps small part of tax plan; markets relieved
Reserve Bank of Australia surprises with a small hike
High VIX; Credit Suisse stock slide point to nerves
SYDNEY, Oct 4 (Reuters) - Asian stocks bounced on
Tuesday after Britain scrapped bits 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 lifting interest rates by a smaller-than-expected
25 basis points, saying they had already risen substantially.
That pushed the Aussie dollar down, lifted the
S&P/ASX 200 index by 3.6% and spurred benchmark 3-year
bonds for their best day in 13 years.
In trade thinned by holidays in China and Hong Kong,
MSCI's broadest index of Asia-Pacific shares outside Japan
rose 1.7%, led by gains in Australia.
UK stocks seemed set for a bounce, with FTSE futures
"It feels short term it's a little bit oversold," said Geoff
Wilson, chief investment officer at Wilson Asset Management in
"Is this the bottom? It's nearly impossible to pick the
bottom, but I don't think so," he said, referring broadly to
Japan's Nikkei rose 2.8%. Sterling drifted
up to an almost two-week high of $1.1343, making for a bounce
now of almost 10% from a record low hit last week after plans
for unfunded tax cuts unleashed chaos on British assets.
"The about-face ... will not have a huge impact on the
overall UK fiscal situation in our view," said NatWest Markets'
head of economics and markets strategy John Briggs.
"(But) investors took it as a signal that the UK government
could and is at least partially willing to walk back from its
intentions that so disrupted markets over the past week."
Investors also took heart from stability at the long end of
the gilt market, even though emergency purchases from the Bank
of England were only relatively modest.
S&P 500 futures rose 1%, following a 2.6% bounce for
the index overnight.
British Finance Minister Kwasi Kwarteng released a statement
reversing planned tax cuts for top earners. It makes up only 2
billion out of a planned 45 billion pounds of unfunded tax cuts
that had sent the gilt market into a tailspin last week.
South Korea's Kospi bounced 2.5%, lifting away from
last week's two-year low, despite North Korea's firing a missile
over Japan for the first time in five years.
The recovery for sterling has settled some nerves in the
currency market, though the persistent strength of the dollar
still holds a lot of major currencies near milestone lows and
has authorities throughout Asia on edge.
Japan's yen hit 145 to the 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 stronger than last week's 20-year trough.
Chinese authorities have rolled out manoeuvres to support
the yuan ranging from unusually strong signals to the market to
administrative measures that raise the cost of shorting it.
"More volatility is almost certainly assured as FX markets
re-focus on U.S. recession risks, which continue to build," said
ANZ senior economist Miles Workman, with U.S. jobs data on
Friday the next major data 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 held just above $0.57.
Treasuries rallied in sympathy with gilts overnight and the
benchmark 10-year yield dropped 15 basis points. It was steady
in Asia at 3.62%, having briefly poked above 4% last week.
Other indicators of market stress abound. The CBOE
Volatility Index remains elevated and above 30. Shares
and bonds of Credit Suisse hit record lows on Monday as
worry about the bank's restructuring plans swept markets.
Oil held overnight gains on news of possible
production cuts, and Brent futures were last up 43 cents to
$89.29 a barrel.
(Editing by Sam Holmes)