Yahoo Finance FTSE 100 and global stocks rally as markets steady
European stocks closed in the green on Tuesday as traders digest the twist and turns of UK politics and economy, in a sign that market confidence is improving after the government's U-turn.
In London, the FTSE 100 (^FTSE) closed 0.4% higher, the CAC 40 (^FCHI) was up 0.6% and the DAX (^GDAXI) rose 1.1% on the day.
Joshua Mahony, senior market analyst at online trading platform IG, said: "Markets are clearly more optimistic after the UK’s missteps provided a stark warning that an expansionary government stance would simply prolongue the crisis if pitched against a central bank seeking to drive down inflation.
"European markets lead the push higher, with the backlash for Liz Truss serving to warn off any potential governments seeking to employ a pro-growth policy.
"Meanwhile, Goldman Sachs (GS) closes out a period where US banks have highlighted ongoing economic risks despite improved margins."
It comes as new UK chancellor Jeremy Hunt on Monday reversed most of the mini-budget tax cuts and announced the government will also have to make spending cuts to get debt relative to gross domestic product falling.
Read more: Jeremy Hunt bins disastrous mini-budget and announces changes to energy bill support
Meanwhile, prime minister Liz Truss has apologised for the "mistakes" she has made in her first few volatile weeks on the job, but insisted she will lead the Conservative Party into the next general election.
However, analysts say that the rally is the calm before the storm as economic struggles remain for the UK as the Bank of England delays its sale of government bonds to stabilise the gilt market.
Threadneedle Street will push back the plan to start selling £838bn of gilts bought under its quantitative easing programme until markets are calmer.
Read more: Pound swings as Bank of England delays signals it will delay bond sales
Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said: "Newly parachuted in UK finance minister, chancellor Jeremy Hunt has succeeded in appeasing bond market vigilantes for now.
"But the hard won truce could fall apart in the weeks to come, if his spending plans don’t deliver the detail investors crave for economic policy uncertainty to abate.
"It’s clear the bank is still unnerved by the potential for fresh instability in gilt markets given that so much uncertainty still remains about the government’s fiscal plans
"The heightened sensitivity to the Bank’s expected moves indicates the fragility of UK economy, as homeowners, consumers and companies grapple with added financial pressure of higher borrowing costs, as a result of the mini-budget debacle."
The pound (GBPUSD=X) was up after the BoE's signalled the sell-off delay. Sterling rose to $1.13 against the dollar. Against the euro it was trading at €1.15 at the time of writing.
UK government borrowing costs are hovering near Monday's low with 10-year gilt yields still below 4%.
Read more: How record high US inflation can hit UK markets, the pound, and 'Trussonomics'
Across the Atlantic, Wall Street indices extended a rally as better-than-expected earnings from Bank of America and an abrupt U-turn on tax cuts from the UK government buoyed market sentiment.
Wall Street’s S&P 500 (^GSPC) added 0.3%, the tech-heavy Nasdaq (^IXIC) advanced 0.1%, while the Dow Jones (^DJI) increased 0.4% at London's close.
Asian stocks finished mixed overnight with the Nikkei (^N225) up 1.4% in Japan, while the Hang Seng (^HSI) edged 1.8% higher in Hong Kong and the Shanghai Composite (000001.SS) lost 0.1%.
Watch: UK's Truss: 'Sorry' for mistakes, won't step down
