Global stocks stalled on Tuesday as plans for a massive European bank merger balanced lingering concerns about problems in the US mortgage market, while the yen eased as risk appetite rose.
The Bank of Japan left interest rates unchanged, as expected, and gave few clues about the timing of the next rise, helping reassure investors who have borrowed the low-cost yen to invest in higher yielding assets. A host of M&A actions boosted the Dow Jones industrial average and the Standard & Poor’s 500 by around 1% on Monday. Tokyo’s Nikkei followed with a 0.9% gain.
In Europe, ABN Amro was the top gainer after the Dutch bank confirmed it was in early and exclusive talks with UK-based Barclays to form a $160 billion (Rs7,04,000 crore) global financial giant. Barclays rose 2.4%. Moves elsewhere in the region were modest, with the FTSEurofirst 300 0.1% lower at 1,473.8 points by 0935 GMT, having jumped 1.4% the previous session.
“If you look at most valuation or technical models which were in overbought or stretched territory a month ago, most of them have corrected. So, now there is no valuation overhang,” said Mislav Matejka, a European equity strategist at JP Morgan.
“Fundamentals for corporate activity, even with credit spreads widening, still remain strong because the gap between the return on capital and cost of capital remains near high levels,” he added.
Investors have expressed concerns that default problems among US lenders specializing in loans to people with poor credit histories could spread, but European credit markets continued to show little signs of stress.
In Britain, the sterling rose three quarters of a US cent to a two-and-a-half-week high while UK stocks and interest rate futures fell after UK consumer inflation data came in higher than expected.
Other currency traders took their cue from the overnight gains on equity markets.
The dollar rose to highs just above 118.00 yen before pulling back to 117.85 yen, while the euro was up 0.1% at 156.60 yen and down slight against the dollar at $1.3290.
Euro government bonds drifted lower ahead of the start of the US Federal Reserve’s two-day policy meeting and data on the US housing market due at 1230 GMT.