European shares rose on Tuesday, with some benchmark indexes hitting multi-year highs, bolstered by indications that a deal could soon be clinched in Washington to avert a debt default.
The FTSEurofirst 300 was up 0.8 per cent at 1,262.50 points, led by miners and autos as investors bought into cyclical shares, Reuters reported.
The blue-chip Euro STOXX 50 index added 0.8 per cent to 3,001.94 points, hitting a fresh 2-1/2 year high, while France’s CAC 40 rose 0.7 per cent to a 5-year high and Germany’s DAX was up 0.9 per cent, at a record high.
Positive signals from talks on Monday between Democrat and Republican Senate leaders fuelled hopes of an imminent deal to reopen shuttered US federal agencies and prevent a default on federal debt.
Republicans also hope to pass their own version of legislation to reopen the federal government, it emerged on Tuesday.
The Euro STOXX 50 Volatility index, or VSTOXX, reversed Monday’s gains, down 7.7 per cent, signalling a sharp rise in demand for risk.
“It’s a risk-on day. The market’s anticipating a resolution to the gridlock in the US and equities have responded accordingly,” Neil Veitch, investment director at SVM Asset Management, said.
The better mood was also visible in the derivatives market, with the Euro STOXX 50 put/call ratio falling back to 1.2, down from a four-year high of 3.9 hit two weeks ago.
The ratio, a widely used European gauge of investor sentiment, measures the trading volume of put options versus call options on the Euro STOXX 50 .STOXX50E.
A ratio below 1 signals bullishness, while a ratio above 1.5 usually signals that investors are turning cautious, buying ‘puts’ as a hedge for their equity portfolios in case of a correction.
“The sooner that we get to a resolution, depending on how long-lasting that resolution is, then markets should quieten down, but (there might not be) a big rally because we haven’t been seeing a significant amount of downside despite the uncertainty,” Henk Potts, market strategist at Barclays, said.
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Reporting by Babatunde Akinsola in Lagos, Nigeria.
