EU summit hopes boost stocks

Tuesday 14:30 BST. Stocks are rallying for a second day as some investors perceive value after three weeks of declines took many benchmarks to 2012 lows.

But early gains for commodities have faded and the euro is softer as sentiment remains fragile.

The FTSE All-World equity index is up 0.7 per cent following a strong showing in Asia and as the FTSE Eurofirst 300 adds 1.3 per cent. Wall Street’s S&P 500 is gaining 0.2 per cent, adding to the previous session’s 1.6 per cent surge.

The eurozone bond sector is less tense, with Spanish 10-year yields easing 17 basis points to 6.10 per cent.

There has been some chatter in the market that this week’s rally is founded on hopes Wednesday’s EU summit will deliver proposals that combine growth promotion with fiscal discipline, while also ensuring Greece can remain in the eurozone and sovereign debt contagion can be contained.

A pledge by Beijing over the weekend that it will focus on boosting activity in the world’s second-biggest economy is also cited as a positive development.

But sceptics note that such optimism regarding Europe has regularly been dashed since the bloc’s crisis began. They argue that growth-focused assets were due a bounce anyway given the swiftness and depth of the relapse.

Since the start of May, equities, industrial commodities and currencies sporting a high correlation to broader bullish sentiment have faced heavy selling, with many benchmarks sliding to their lows for the year.

Intensifying worries regarding the eurozone – after the Greek electorate in effect rebuffed the EU bailout and austerity deal – were joined by heightened concerns about the strength of the US and Chinese economies to shatter investor risk appetite.

The ending of the US corporate earnings season – generally well received – removed an important support. It is also possible that Facebook’s poor debut did not help market confidence either.

That left the FTSE All-World index down 9.3 per cent in the three weeks to last Friday, while US crude typified the battering for commodities by losing 12.8 per cent over the same period.

But in some traders’ eyes the severity of the slide – regardless of the cause – was too much. The All-World’s 10-day relative strength index (RSI), a measure of market momentum, on Friday dropped to just 13, its most “oversold” mark since August last year.

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