Markets rose briskly as a raft of US economic data suggested that the “Goldilocks” scenario remains a firm possibility.
Such an outcome – with stable economic growth and inflation under control despite a series of interest rate rises from the Federal Reserve – seems to be on the table, even though the inflationary impact of rising energy prices is beginning to wash through.
Following the previous day’s warmer-than-expected CPI, the Producer Price Index also rose at a headline level by 0.7%, more than the expected 0.4%, although the core number of 0.2% was in line with estimates.
At the same time, retail sales for August came in better than expected, jumping by 0.6% as opposed to the expected 0.1%. Higher energy prices were the primary driver, although the underlying trend of consumer spending slowed slightly, underlining the fact that there will be more twists in the road before economic victory can be declared by the Fed.
Even so, while the likelihood of unchanged interest rates at next week’s meeting is apparently nailed on, the latest set of data is also reducing the consensus opinion of a final hike in November. Thereafter, the debate would change to how long the current levels will be maintained before the Fed even begins to entertain the possibility of any rate cuts.
Elsewhere, sentiment received a further boost after the successful float of UK chip designer Arm Holdings on Nasdaq. The shares surged in initial trading by around 25%, not only underlining investor appetite for anything related to Artificial Intelligence, but also providing broader hopes that the offer may be enough to kickstart what has recently been a moribund IPO market.
Following the general strength of the main indices on a positive news day, the Nasdaq is now ahead by 33% in the year to date, with the S&P500 having added 17% and the Dow Jones 5%.
Asian markets were buoyed by the promising noises coming from the US, as well as some better news out of China. The central bank announced a cut to the banks’ reserve requirement ratio and lowered the short-term policy rate. The news came as measures of Chinese retail sales and industrial output for August both topped expectations, implying the possibility that a fragile economic recovery could be playing out following a number of incremental stimulative moves from the authorities.
It was not all plain sailing, however, as a separate release showed that new house prices fell by the most in several months, reiterating the parlous state of the property sector. Subsequent economic releases will be key in understanding whether the generally better than expected numbers represent a one-off, or whether a new trend is being established.
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Given the upbeat performances from elsewhere, the FTSE100 was off to a flying start in early exchanges. The premier index has enjoyed a steady and increasingly successful week as the global economic picture has begun to display some benign signs. The latest rally leaves the index up by almost 4% in the year to date and, although this level is some way off the record highs achieved in February, there are also hopes that the current wave of global optimism could mark an inflection point.
Early beneficiaries of the wave of buying interest were widespread and, on the back of a possibly improving Chinese picture, included the likes of Prudential (LSE:PRU) and Burberry Group (LSE:BRBY). Mining stocks were also in demand, while the embattled housebuilding sector also saw some renewed investor attention. Meanwhile, the more domestically focused FTSE250 also managed to claw its way back to positive territory, now ahead by a marginal 0.6% so far this year.
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