Global Market Overview

Last updated: July 18, 2013 10:11 pm

Markets rally as US debt outlook lifted

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Thursday 22:00 BST. Global markets rallied on positive data and earnings across the world’s major markets, while the outlook on US government debt was lifted late in the day.

The FTSE All World Index gained 0.5 per cent, as investors turned their focus back on factors in local markets after several days in thrall to the words of Ben Bernanke, the Federal Reserve chairman.

Moody’s, the credit rating agency, raised its outlook from negative to stable on the US triple A rating in the session citing improvements in the country’s economy and smaller budget deficit forecasts.

The move followed a record-high closing for US stocks as a flurry of earnings data, including forecast-beating results from Morgan Stanley, lifted equities. At their highs, the S&P 500 moved within 7 points of the 1,700 level for the first time in the benchmark’s history, while the Dow Jones Industrial Average topped 15,580.

As US equities rallied, financial sector stocks continued to break out as the country’s largest banks have been lifted by strong earnings results.

But worse-than-expected results from Microsoft and Google sent both technology companies lower in the after-market and left investors wondering if stocks were setting up for a pullback in week’s final session on Friday. The poor results came as the city of Detroit became the biggest US city to file for bankruptcy and cast a shadow on the day’s advances.

Earlier in the day, fresh economic data set the tone for bulls. Weekly jobless claims fell more than expected, by 24,000 to 334,000, the lowest level since the start of May.

The indicator, which is less closely followed than the monthly jobs report, left investors debating whether the signs of economic health would continue to bolster equities as improved data could hasten any withdrawal of Federal Reserve monetary stimulus.

“We believe that week’s survey period claims reading remains consistent with a payroll figure in the 150,000 to 200,000 range,” said Gennadiy Goldberg, US strategist at TD Securities.

European stocks surged, with sentiment boosted by a successful Spanish bond auction. Madrid sold 10-year debt at 4.723 per cent, down from 4.765 per cent at the last auction, while demand also picked-up.

Spain’s benchmark 10-year bond yield fell 8 basis points to 4.64 per cent, while the Ibex 35 index of leading Spanish stocks rose 1.9 per cent. The broader FTSE Eurofirst 300 finished 0.9 per cent higher.

In the UK, strong retail sales data helped the FTSE 100 move from early losses into positive territory.

Earlier, in Tokyo, the Nikkei gained 1.3 per cent as the Japanese currency weakened to more than Y100 against the dollar, boosting the country’s exporters.

But Chinese stocks closed 1 per cent lower, on renewed concerns about the availability of finance to property developers and comments from Lou Jiwei, finance minister, that China will not resort to large-scale fiscal stimulus to prop up the economy.

In currency markets the dollar strengthened. As well as breaking the Y100 mark, the dollar climbed 0.1 per cent against the euro.

The backdrop to all of these moves remains Federal Reserve policy, however.

Mr Bernanke’s comments in June that the Federal Reserve would begin to taper its asset purchase programme if the US economy continued to strengthen, convulsed markets. Equities and Treasuries, which have benefited from easy central bank money, sold off, while the dollar strengthened in anticipation of interest rate increases.

But Mr Bernanke, who appeared before the Senate Banking committee for his second consecutive day of congressional testimony, has been applying balm to markets since, with US stocks climbing to fresh record highs as a result.

The central bank chairman has promised tapering would not begin until economic data improved. The impact of those comments could be seen in the market for US government debt, where the yield on two-year bills, a barometer of the Treasury market’s expectation of rate rises, has fallen below 0.3 per cent for the first time since June.

Mr Bernanke’s testimony has had a noticeable effect on gold. The precious metal rose 0.6 per cent to $1,283 a troy ounce, as fears of a rapid taper of Federal Reserve asset purchases receded.

Additional reporting by Ajay Makan in London and Patrick McGee in Hong Kong

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