August 16, 2022

World Stocks Rally As Investors Weigh Spending Data

On Friday, global equities and oil rose, while the US dollar fell, as investors cut down their expectations of a more aggressive hike in the interest rates by the US Federal Reserve this month. Moreover, the data for US spending also turned out to be better than forecasts.

Recession concerns

Investors are still dealing with worries about the global economy moving towards a recession, as major central banks moving to get ahead of the surging inflation. This week, there were sharp interest rate hikes seen in Chile, New Zealand, the Philippines, Canada, and South Korea. Many investors are still digesting the ease of the political crisis in Italy.

On Friday, fears of an economic slowdown were fueled by Chinese data showing second quarter growth to be just 0.4%. This is the worst performance since 1992, with the exception of the beginning of 2020 when the COVID-19 pandemic had first struck.

The data was a reflection of the colossal losses due to the widespread COVID curbs implemented in China that saw mainland shares drop by 1.7% and an Asian index excluding Japan reached two-year lows. But, investors were looking at the bright side elsewhere.

Analysts said that there was a snapback due in the market because retail sales data turned out to be better than expected, as did results from Citigroup on Friday.

Quarterly results

Meanwhile, the Italian president did not accept the resignation of Prime Minister Mario Draghi, which prevented a government collapse, even though the coalition’s fate is still hanging in the balance. There was a 1.79% increase in the continent-wide STOXX 600 index and a 1.46% gain in the MSCI’s global share index.

The main indexes on Wall Street were also trading higher, as positive retail sales data assuaged a slowdown in the economy, while quarterly results saw Citigroup shares surge. However, the second quarter earnings of companies have put traders under pressure, as they have turned out to be quite underwhelming so far.

On Friday, a number of European companies posted downbeat quarterly results, while a fall in profits was also reported by US bank Wells Fargo. Results on Thursday of Morgan Stanley and JPMorgan Chase were also relatively weaker.

There was a 1.85% increase in the Dow Jones Industrial Average and the Nasdaq Composite gained 1.41%. The S&P 500 also advanced for the day by 1.61%.

Interest rate hikes

The slowdown in economic growth has driven markets to cut expectations of rate hikes. Since there is an energy supply crisis in Europe, investors have reduced expectations of a massive hike in the interest rate from the European Central Bank by the end of the year.

As far as US markets are concerned, they are pricing in rate cuts to stop by March 2023. Comments from the US Fed officials about not hiking rates more than 75 basis points saw the dollar index come down from two-decade highs. It recorded a 0.451% decline, while the euro gained 0.59% to trade at a value of $1.0075.

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