London: European stock markets rose Tuesday after Japan’s Nikkei index recovered from 26-year lows and US stock futures indicated a strong opening on Wall Street ahead of Wednesday’s expected rate cut from the US Federal Reserve.
The FTSE 100 index of leading British shares was 153.79 points, or 4%, higher at 4,006.38, helped along by a near 8% rise in BP PLC’s share price after the oil giant revealed an 83% increase in net profit in the three months from July to September to $8.05 billion. Higher oil prices also helped energy stocks.
The CAC-40 index of leading French shares was up 80.78 points, or 2.6%, at 3,148.13.
The biggest gainer in Europe was Germany’s DAX, up 343.16 points, or 7.9%, at 4,677.80. The DAX has been lifted disproportionately by another 66 percent rise in Volkswagen AG shares, which came on top of Monday’s near 150% rise.
VW’s gains have come after Sunday’s announcement from Porsche that it had increased its stake in the company to 42.6% as part of its goal to take a majority stake. It also said it held an additional 31.5% in cash-settled options, that would give it indirect control of 74.1% of VW shares.
Analysts explained that Porsche’s announcement has forced hedge funds to cover huge positions as they had bet on VW’s shares falling, especially as the state of Lower Saxony owns just over 20% of VW stock. That means there’s only around 5 percent of free-floating VW stock available.
There are hopes that Tuesday’s gains may be sustained as US stock index futures were sharply higher as the Fed begins its two-day interest rate deliberations. The Dow and Standar & Poor’s futures were both up more than 4%.
Jeremy Batstone-Carr, head of research at Charles Stanley, said there’s “scope for disappointment” given that the markets have fully priced in a half percentage point rate cut from the Fed and only partially priced in the possibility of a three-quarters percentage point reduction in the benchmark interest rate to 0.75%.
Rate cuts tend to boost stocks.
Earlier, most Asian stock markets rebounded after several days of steep declines as investors snapped up beaten down shares like Honda, Samsung and HSBC.
Japan’s benchmark Nikkei 225 index surged 459.02 points, or 6.4%, to 7,621.92 after early falling to fresh 26-year lows.
The Nikkei was helped somewhat during the session by the yen’s depreciation against the US dollar. The dollar, which had fallen to a 13-year low against the yen on Friday, rose to 94.72 yen from 93.01 yen. Traders remain on guard over possible moves by Japanese authorities to intervene in the market to cap the yen’s strength after Sunday’s G7 statement warning about excess yen volatility.
Hong Kong’s Hang Seng index rose a whopping 14.4%, its biggest gain in 11 years, to 12,596.29, a day after plunging more than 12%. South Korea’s Kospi jumped 5.6% to 999.16, helped along by the South Korean central bank’s interest rate cut on Monday.
Even Shanghai’s main index, which had fallen 6% earlier, turned positive in the afternoon.