Slipping US bond yields gave equity markets some respite

London (AFP) - European stock markets ended a rollercoaster session higher as tensions lessened in the bond markets and tech stocks recovered, dealers said.

Although still worried about Italy’s fiscal stability, investors breathed a sigh of relief as bond yields eased and the euro slipped against the dollar.

“European equities have turned to the upside in late-day action, with the euro losing ground on the US dollar, with technology issues recovering and US bond yields giving back a recent jump that has been a source of global market uneasiness,” analysts at the Charles Schwab brokerage said in a market comment.

On Wall Street, the Dow index recovered ground lost at the opening to show little change in the late New York morning.

Earlier, the Italian government appeared to have some success in talking yields down, with Finance Minister Giovanni Tria saying that fears over his country’s financial health – and the consequent spike in borrowing costs for Rome – did not fairly reflect the situation in the eurozone’s third largest economy.

- Italy bonds breathe easier -

“Recent levels of government bond yields do not reflect the fundamentals of the country, and once the economic policy agenda is approved by parliament, the uncertainty that has weighed on government securities in recent months will disappear,” Tria told parliament’s finance committee.

The closely watched spread between the rates on 10-year bonds paid by Italy compared with those offered by Germany, which is a measure of the added risk perceived by investors to holding onto Italian debt, had hit the highest level since April 2013 on Monday.

Early Tuesday, the Italian benchmark 10-year bond yield rose another nearly four basis points to 3.60 percent, compared to Germany’s 0.55 percent, but then slipped back to 3.51 percent – still the second-highest government bond yield in the eurozone after Greece.

Brussels and Rome are at loggerheads after Italy’s populist government passed a purse-busting budget last week, to the annoyance of EU officials.

Elsewhere, the sell-off in Asian markets slowed on Tuesday, despite simmering US-China trade tensions.

A testy public interaction between Chinese Foreign Minister Wang Yi and US Secretary of State Mike Pompeo in Beijing on Monday refuelled market worries about China-US relations, which have taken a hefty knock from tit-for-tat tariffs.

“A possible train wreck on the negotiation front could completely derail global markets,” said Stephen Innes, head of Asia-Pacific trading at OANDA.

- Rand recovers -

“We should not underestimate the potentially destabilising effect… a weaker yuan will have on regional markets, if not global markets.”

Adding to economic uncertainty on Tuesday was a bearish report from the International Monetary Fund, which lowered its forecast for Chinese economic growth in 2019 and warned that escalating trade tensions would drag on the world’s second-largest economy.

The IMF’s World Economic Outlook predicted China’s economy would grow 6.2 percent next year, down from a previous forecast of 6.4 percent.

Both of those figures would mark the slowest rate of expansion for China since 1990.

The South African rand, which had fallen earlier Tuesday amid uncertainty about the fate of the country’s respected finance minister, recovered after Nhlanhla Nene resigned over undisclosed meetings with the business family at the heart of a corruption scandal.

Although the move was seen as a blow to President Cyril Ramaphosa, investors appeared to welcome his rapid decision to name former central bank governor Tito Mboweni as Nene’s successor.

- Key figures around 1550 GMT -

London - FTSE 100: UP 0.1 percent at 7,237.59 points (close)

Paris - CAC 40: UP 0.4 percent at 5,318.55 (close)

Frankfurt - DAX 30: UP 0.3 percent at 11,977.22 (close)

EURO STOXX 50: UP 0.4 percent at 3,321.79

New York - Dow Jones: FLAT at 26,485.24

Hong Kong - Hang Seng: UP 0.2 percent at 26,258.30

Shanghai - Composite: UP 0.2 percent at 2,721.01 (close)

Tokyo - Nikkei 225: DOWN 1.3 percent at 23,469.39 (close)

Euro/dollar: DOWN at $1.1485 from $1.1492 at 2100 GMT

Pound/dollar: UP at $1.3138 from $1.3090

Dollar/yen: DOWN at 113.07 from 113.23 yen

Oil - Brent Crude: UP 85 cents at $84.76 per barrel

Oil - West Texas Intermediate: UP 63 cents at $74.91

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