European stocks gain as investor optimistic grows over US debt

European equities rose on Thursday, joining an overnight rally on Wall Street, as concerns over a potential US government default and the health of regional banks eased.

Europe’s region-wide Stoxx 600 was up 0.4 per cent, recovering from two days of losses, while France’s Cac 40 rose 0.6 and Germany’s Dax rose 1 per cent. London’s FTSE 100 rose 0.5 per cent.

Wall Street’s benchmark S&P 500 gained 1.2 per cent in the previous sessions, and the Nasdaq Composite closed 1.3 per cent higher, after US president Joe Biden said he was “confident” of reaching a budget agreement with Congress to avoid a default on US debt.

“The market has mostly priced in a successful debt-ceiling deal,” said Mike Zigmont, head of research and trading at Harvest Volatility, noting that “there won’t be much market movement, from these levels, when the deal is announced as official”.

Meanwhile, the KBW regional banking index gained 7.3 per cent on Wednesday, as investors gained confidence in the sector’s health after lender Western Alliance reported earlier in the week that its deposits grew by $2bn in the second quarter.

The yield on interest rate-sensitive two-year Treasury notes was up 0.01 percentage points at 4.16 per cent. The yield on the benchmark 10-year note was flat at 3.58 per cent. Bond yields rise when prices fall.

The dollar index, which tracks the currency against a basket of six peers, gained 0.1 per cent.

“The dollar’s strength [ . . . ] signals how the FX markets seem to be lagging the cautious optimism shown in other asset classes like equities,” said Francesco Pesole, currency strategist at ING.

International oil benchmark Brent crude fell 0.4 per cent to $76.7 a barrel, while US equivalent West Texas Intermediate was down 0.4 per cent to $72.5 a barrel.

US futures were flat ahead of the New York open, as traders awaited US data on initial jobless claims and existing home sales, which could show how consumers are coping under the weight of rising prices and high borrowing costs.

Asian stocks were also higher, propelled by the momentum from Wall Street. Hong Kong’s Hang Seng index added 0.6 per cent and Japan’s Topix rose 1.1 per cent.

China’s CSI 300 was the outlier, falling 0.1 per cent, and extending its losses from earlier in the week when official data pointed to a slowdown in the country’s post-Covid recovery.