World’s largest economies greet New Year with optimism
US AND European stocks rose with commodities as data bolstered optimism in the world’s largest economies.
Crude touched an 18-month high and the dollar rallied.
The Dow Jones industrial average resumed its advance towards 20 000 points as a reading on US manufacturing rose at the fastest pace in two years.
The Institute for Supply Management said yesterday that its index increased to 54.7 points, the fourth consecutive advance, from 53.2 points a month earlier. A rebound in export markets has helped give an added boost to US factories, following deceleration over the past of couple years.
Banks were the main drivers of the gains on Wall Street yesterday, with the S&P 500 financial sector rising 1.33 percent. Barclays raised price targets on several Wall Street banks, including Bank of America, Wells Fargo and JPMorgan.
Goldman Sachs rose 1.5 percent to $243.50 (R3 335.83) and was the top stock on the Dow.
European equities headed for a bull market as the pace of German inflation doubled last month.
Long-term inflation expectations in the 19 country euro zone, measured by the five-year, five-year forward rate, are now at their highest in more than a year and close to the ECB’s near 2 percent target, as it prepares to pare back the pace of its mass money-printing scheme.
Britain’s FTSE 100 wasted no time on its first day of trade in 2017 as it hit a record high of 7 200 points.
Copper led metals higher after Chinese manufacturing closed the year on a relatively robust note.
The manufacturing purchasing managers index (PMI) stabilised near a post-2012 high in December, edging down to 51.4 points from 51.7 points the prior month. The non-manufacturing PMI slipped to 54.5 points from a two-year high of 54.7 points in November. Numbers higher than 50 points indicate improving conditions.
A gauge of factory input prices surged to a five-year high of 69.6 points.
Crude soared to the highest since July 2015 as Kuwait cut output. Oil prices hit an 18-month high as a deal to cut output took effect on Sunday, and on upbeat China factory data.
The dollar racked up its best gain – 1.2 percent – since December 15 against other top world currencies to leave it just shy of a 14-year high.
“If you look at the state of the economy globally, things are in pretty good shape,” ABN Amro’s chief investment officer Didier Duret said. “It’s not only a Trump rally, it is a cyclical rally,” he added. “We still believe the dollar will continue its rise and the euro will weaken, which can provide substantial impetus for European earnings.”
The strong start to 2017 is a reversal from a year ago, when concern over China’s economy roiled global financial markets. China’s economy has been a source of strength in recent weeks, improving investor risk appetite following a period of caution at year-end.
Advances in the dollar and US stocks sparked by Donald Trump’s election resumed after fading late last year.