Stocks rally as investors weigh Wall Street bank earnings

Global shares extended a rally from Thursday, as Wall Street banks kicked off the latest earnings season and investors braced themselves for the UK government to scrap extensive tax cuts.

A FTSE gauge of worldwide stocks rose 1.1 per cent on Friday, after closing the previous session up 1.5 per cent. The broad S&P 500 and the tech-heavy Nasdaq Composite added 0.6 per cent and 0.9 per cent respectively after the New York opening bell. Europe’s regional Stoxx 600 advanced almost 2 per cent.

Those moves came after JPMorgan revealed that third-quarter net income had dropped 17 per cent — a decline less severe than analysts’ expectations. The fall came as the US bank took a $1.5bn credit loss provision, amid concerns over a darkening economic backdrop.

The gains in equities on Friday followed sharp swings on Wall Street on Thursday. The S&P had ultimately closed the session 2.6 per cent higher, wiping out a fall earlier in the session of more than 2 per cent after fresh inflation data came in hotter than expected.

The consumer price index on Thursday reflected a rise of 8.2 per cent for September, below August’s annual figure of 8.3 per cent but above a consensus forecast of 8.1 per cent.

Hot inflation readings have typically worsened the mood in equity markets this year, fuelling expectations that the Federal Reserve and other global central banks will tighten monetary policy even more aggressively. Fears have intensified that rate-setters will lift borrowing costs into a prolonged economic slowdown, weighing heavily on companies’ valuations.

Several investors said there was no single explanation for the sudden swing in sentiment, with some arguing that markets had already sold off significantly in recent weeks, flushing out bearish investors. Other data published on Thursday, such as rental costs, also pointed to falling prices.

“Nervous investors have had several opportunities to exit this market,” said Jim Paulsen, chief investment strategist at the Leuthold Group. “The market is really getting battered but it’s holding up well given the news. Part of that is because markets do realise that inflation is coming down and is likely to keep coming down.”

Markets are now pricing in a fourth consecutive 0.75 percentage point interest rate rise from the Fed in November.

Friday’s market moves also came after UK prime minister Liz Truss sacked chancellor Kwasi Kwarteng and was preparing to walk back plans for extensive tax cuts. The government’s “mini” Budget, delivered on September 23, had sparked a dramatic sell-off in UK bonds as investors took fright at the prospect of further borrowing. The volatility in the UK has cascaded into other, bigger, markets such as that for US Treasuries.

UK gilt prices continued to rise on Friday after a sharp rally on Thursday, though the advance eased in afternoon trading. The 30-year yield was recently down 0.07 percentage points, at 4.46 per cent.

The pound slipped 0.9 per cent against the dollar to $1.123, having rallied as high as $1.1365 overnight.

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