(Bloomberg) – Risk appetite made a comeback following the selloff that wiped $2.7 trillion off the value of global equities on Monday. Stocks, commodities and emerging-market currencies extended gains after China cut interest rates.
European stocks clawed back some losses following their biggest decline since the 2008 financial crisis and futures signalled US equities will rally after entering a correction. Russia’s ruble led a rebound in developing nations as raw-material prices advanced from the lowest level since 1999. The yen fell for the first time in five days and Treasuries retreated.
The recovery signalled the selloff may be overdone. German business confidence unexpectedly increased in August as companies brushed off concerns that China’s slowing economy will continue its drag on global growth. China’s central bank cut its benchmark lending rate for the fifth time since November and lowered the amount of cash banks must set aside.
“What happened yesterday was purely panic,” said Peter Dixon, a global economist at Commerzbank AG in London. “We’re overplaying the impact the Chinese collapse would have on Europe. The risks are still high, and sentiment is still fragile.”
“Fundamentals aren’t as bad as the headlines would suggest,” said David McDonald, Sydney-based chief investment strategist for Australia at Credit Suisse Group AG’s wealth management and private banking unit. “It’s just a case of whether you would want to rush in now or perhaps wait until it settles down a bit more.” The US currency climbed 1.2 percent against the euro, paring a drop of 5.4 percent in the previous four days.
