Wall Street lifted for another late rally on Thursday, emulating gains in Europe as investors sifted through the latest batch of economic and corporate reports for signs of recovery.
The day got off to an apparently gloomy start with news that Chinese gross domestic product growth in the first quarter had slowed to its lowest level since records began in 1992.
But most economists took a broadly optimistic view of the figures. “There are signs that the [Chinese] stimulus measures are starting to pay off,” said Jay Bryson, at Wachovia. “The Chinese economy probably bottomed in the first quarter and growth should strengthen over the next few quarters.”
But Jonathan Loynes, at Capital Economics, was more cautious. “It seems wishful thinking to conclude, as many are, that China is on the cusp of a rapid rebound,” he said.
“Stabilisation so far is the result of loan-fuelled demand growth – but with officials already concerned that overzealous lending risks stoking asset bubbles and undermining financial sector stability, this will probably not continue.”
There was grim news from the eurozone as industrial production slumped in February – although once again analysts found room for optimism.
“Industrial output is likely to fall at an even faster pace in the first quarter than the record-breaking fall that we saw in the fourth quarter,” said Nick Kounis, at Fortis Bank. “However, the pace of contraction should ease significantly in the second quarter as the pace of de-stocking eases and as global demand starts to regain its footing. We should see clearer signs of this in next week’s business surveys for the month of April.”
In the US, indications that the housing market might have finally troughed were followed up with news that initial jobless claims had dropped to their lowest level since late January – although continuing claims soared. Meanwhile, the contraction in manufacturing activity in the US mid-Atlantic region slowed this month, according to the Philadelphia Federal Reserve.
“The Philly Fed data definitely play with the grain of other economic numbers that suggest the pace of economic decline is slowing materially,” said Alan Ruskin, at RBS.
“Nonetheless, the overall index is still very weak as are most subcomponents even if they have improved substantially from the month before.”
In spite of the broadly positive tone of the day’s economic reports – and some encouraging quarterly earnings from JPMorgan and Nokia – US equities struggled. Buoyed by late buying, the S&P 500 closed up 1.6 per cent, with the Dow Jones Industrial Average rising 1.2 per cent.
Earlier, the pan-European FTSE Eurofirst 300 index rose 1.6 per cent to close above the 800 level for the first time in two months. In Tokyo, the Nikkei 225 Average inched up 0.1 per cent.
Credit spreads showed a much-improved tone after JPMorgan’s results soothed concerns about financials. The investment-grade Markit iTraxx Europe index narrowed 7bp to 146bp and the Markit CDX North America index tightened 4bp to 175bp.
US government bonds fell as their safety appeal dimmed against the backdrop of better economic news – particularly the Philly Fed.
The yield on the 10-year Treasury rose 7bp to 2.83 per cent, with the market also subdued by the Federal Reserve’s modest purchase of $1.5bn of inflation-protected bonds.
German Bunds were also hit by the strength seen in European equities, and the 10-year yield rose 5bp to 3.19 per cent. France and Spain sold €12.7bn of securities. UK gilts outperformed after a £4bn auction of five-year paper met strong demand. The 10-year gilt yield rose 2bp to 3.17 per cent.
The currency markets appeared to take a different tack to bonds as investors sought the perceived safety of the dollar and the yen.
The dollar gained ground against the euro and sterling but lost ground against the Japanese currency. The Australian and New Zealand dollars were hurt by the weak Chinese figures.
In commodities, the US oil price crept back towards $50 a barrel but the advance was reined in by uncertainty about the global economic outlook. Copper fell back from a near six-month high after the Chinese growth figures, and gold also retreated.
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