European stocks largely treaded water on Wednesday, as investors appeared to brush off both a sharp sell-off and subsequent rebound in US markets.
Wall Street had seen a sharp sell-off on Tuesday, as US president Donald Trump called off talks with Democrats over a stimulus package.
But stimulus measures in Australia helped limit declines in Asian markets overnight, and investors’ initial disappointment at the breakdown in US cross-party negotiations eased on hopes a stimulus deal would still emerge.
Trump’s decision had seen the main indices in the US suffer their biggest drop in a fortnight in the previous trading session, but they bounced back on Wednesday.
There appear to be growing hopes a stimulus plan may not be imminent but will still emerge after the election, whoever wins on 3 November.
Watch: What US president Donald Trump calling off stimulus talks means for markets
“There are hopes that the stimulus plans could be revived in the period between the election and January’s inauguration which are probably helping investors keep the news in perspective for now,” wrote AJ Bell investment director Russ Mould.
“Markets were starting to look through the likely lack of short-term stimulus and were instead focusing on the prospect of more stimulus after the increased likelihood of a Democratic clean sweep,” wrote Deutsche Bank analysts in a note. “Further evidence that this election will result in a definitive result will offset any short term stimulus disappointment.”
Wall Street losses had only a limited spillover into European stocks, and US futures were pointing to a higher open later on Wednesday.
The Australian government’s budget statement also helped limit the spillover from the US sell-off into Asian stocks. Australia’s S&P/ASX 200 (^AXJO) rose 1.3%, Japan’s Nikkei (^N225) shed only 0.1% overnight, China’s Shanghai Composite (000001.SS) lost 0.2%, and Hong Kong’s Hang Seng (^HSI) was up 0.9%.
Watch: What is a recession?