Our head of markets explains why events in the US are inflating share prices and what the future holds for UK Plc.
Investors turned recent losses on their head, as a new surge of optimism lifted Wall Street strongly higher.
Further reflection on Federal Reserve comments reassured investors, with the likelihood of tapering later this year not only priced in by markets, but also showing some indication that the economic recovery is on track and being guided properly. At the same time, interest rate hikes seem to be on the horizon, but at a measured pace which would not upset growth.
In the meantime, the global system remains awash with liquidity looking for a home, and the sharp spike in prices was reflective of widespread buying. This came despite some numbers showing tepid business activity growth and a slight increase in jobless claims, and with the Evergrande situation remaining live in the background. There has been no update on the coupon payment which fell due yesterday, but increasingly there are some hopes that any default would have limited contagion outside of China, due to its lesser links with the global system.
The strong finish to trading restored the strong growth of the main indices and, in the year to date, the Dow Jones is now ahead by 13.6%, the S&P500 by 18.5% and the Nasdaq by 16.8%.
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Progress in the UK markets has been less volatile and more sedate, underpinned by some further M&A activity, an increasingly even economic recovery and as a destination for investors hunting for bargains on valuation grounds.
The Bank of England also decided not to take any immediate monetary action, although its comments were taken as slightly hawkish given its observation that the case for interest rate rises appears to have strengthened.
Alongside elevated inflation, the Bank clearly remains ready to react to any further data which suggest that the time for rate rises is edging nearer, even if the current consensus sees no action until next year at the very earliest.
The beleaguered travel sector has also been boosted by the easing of some international restrictions, even though the challenge of recouping lost income is only just beginning. Even so, the market adage that it is often better to travel than arrive is currently providing some relief to the beleaguered tourism sector.
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Over the last week there have been several notable gains, with the likes of International Consolidated Airlines (LSE:IAG) having added 21%, easyJet (LSE:EZJ) 8%, Rolls-Royce (LSE:RR.) 16% and cruise operator Carnival (LSE:CCL) 9%.
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