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World equity markets powered to fresh highs on Thursday as continued optimism about the outlook for global growth offset lingering concerns about the US economy and surging oil prices.
Emerging markets led the way as the Brazilian, Russian, Chinese and Indian stock markets all climbed to new peaks and the MSCI emerging equity index hit a fifth successive record high.
“Earnings growth in emerging markets continues to be strong and, while valuations are not as compelling as they once were, they are nowhere near the levels that would suggest we are near a market top,” said Peter Berezin, economist at Goldman Sachs.
“EM countries have generally done a good job in reducing economic vulnerabilities,” he said.
“Add to this the fact that the Fed easing has generally been very constructive for EM equities – especially in markets like Hong Kong, where the local currency is effectively pegged to the US dollar – and we think the balance of risks still firmly lie on the side of a continuation in the EM bull market.”
New peaks were struck right across the Asia-Pacific region, with record highs in Hong Kong, Singapore, Seoul and Sydney. In Tokyo, the Nikkei 225 Average climbed 1.6 per cent to its highest for 2½ months.
There were records on Wall Street as an improved profit forecast from Wal-Mart helped alleviate concerns about US third-quarter earnings but stocks had a volatile day.
Having climbed as high as 2,834, the Nasdaq Composite fell as much as 2.7 per cent from this level to close 1.4 per cent lower on the day at 2,772.20. The S&P 500 was 0.5 per cent lower. The Dow Jones Industrial Average also hit a new high but closed 0.5 per cent lower at 14,015.12. In Europe, the FTSE Eurofirst 300 index rose 0.6 per cent to 1,599.43, led by gains in the telecoms and mining sectors.
In Europe, the FTSE Eurofirst 300 index rose 0.6 per cent to 1,599.43, led by gains in the telecommunications and mining sectors.
In the currency markets, the euro maintained a firmer tone against the dollar, despite data confirming that eurozone gross domestic product growth had weakened to 0.3 per cent in the second quarter of the year from 0.8 per cent in the first three months.
Howard Archer, economist at Global Insight, said eurozone GDP was likely to rebound in the third quarter but added that there had been some worrying signs from the latest data.
“As a result, we believe that the European Central Bank will not raise interest rates any higher from their current level of 4 per cent, particularly given the strength of the euro,” he said.
The yen came under pressure after the the Bank of Japan voted 8-1 to leave its key interest rate unchanged at 0.5 per cent.
However, analysts said comments from Toshihiko Fukui, BoJ governor, indicated that the likelihood of a rate rise was increasing.
“We still believe a rate hike is possible as early as December based on continued stabilisation on financial markets and not least on the recent weakness of the yen,” said Flemming Nielsen, of Danske Bank.
Government bonds fell as investors watched equity prices surge and digested some encouraging US trade and labour market data.
The US trade gap narrowed for a fourth successive month as the weaker dollar and robust global growth pushed exports to a record. Imports fell by 0.4 per cent.
Initial jobless claims fell by a bigger-than-expected 12,000 last week and the number of long-term jobless fell to its lowest since June.
Some analysts suggested that the jobless figures added weight to the view that the Fed would leave interest rates unchanged at its policy meeting at the end of this month.
The yield on the two-year US Treasury briefly pushed above 4.2 per cent for the first time since the end of August before easing back to stand 4 basis points higher at 4.19 per cent. The ten-year yield was up 3 bp at 4.68 per cent.
In Europe, the yield on the 10-year Bund rose 5bp at 4.39 per cent and the 10-year Gilt yield was 5bp higher at 5.05 per cent.
Commodity prices moved higher virtually across the board. The benchmark US oil contract broke back above $83 a barrel to stand within striking distance of its record high. This followed news of a surprise drop in US crude and distillate stocks last week.
Gold briefly pushed above $750 an ounce to a fresh 28-year high while platinum and lead hit record highs.