Global stocks climb as US growth offsets China fears
Global stock markets surged Thursday on renewed confidence in the US recovery after days of wild swings, but some observers warned of more turbulence to come over the slowing Chinese economy.
Buyers streamed back to markets after Shanghai, the epicenter of the volatility, snapped a five-day losing streak, and a surprisingly strong new estimate of US economic growth in the second quarter — 3.7 percent — gave more support as the day passed.
That — and a production stoppage by Shell in Nigeria — sent oil prices zooming up 10 percent, their biggest single-day jump since the 2009 global economic crisis.
“The US economy continues to perform on a consistent basis… (showing) that its economic recovery is sustainable… The United States is leading the global economy as it has been since late last year,” said FXTM chief market analyst Jameel Ahmad.
But none of that cleared up questions about China’s economic slowdown and the impact of Beijing’s efforts to shore up growth.
Economists remained worried that a stall in the growth of the world’s second largest economy will drag down other emerging markets and in turn hit the leading powers, including Japan, Europe and the United States.
The moves by the Chinese government are “not as effective as they used to be,” said Yale University finance professor Chen Zhiwu on a conference call with the Council on Foreign Relations.
Willem Butler, global chief economist at Citigroup, is skeptical China will take the necessary steps to boost growth, such as engineering a stimulus program to encourage badly needed consumption.
“They will respond, but they will respond too late to avoid a recession, which is likely to drag the global economy with it,” Butler warned on the same conference call.
– Global market turnaround –
The turnaround in Chinese shares, which ended with a 5.34 percent gain, came in the last hour of trade Wednesday, sparking speculation of state-engineered buying and talk of more possible support measures from the government.
“There were external funds flowing in, but it’s uncertain if it was the national team,” Shenwan Hongyuan analyst Gui Haoming said, referring to entities which trade on behalf of the government.
Qian Qimin, also of Shenwan Hongyuan, added that investors expect that “pension funds will enter the market.”
China said Sunday that its massive state pension fund will be allowed to invest up to 30 percent of assets in stocks.
In any case, the momentary appearance of a floor to the losses on China’s markets spilled across the rest of the globe. London gained 3.56 percent and Paris 3.49 percent; shares in two threatened major emerging markets, India and Brazil, reversed course and headed higher; and Wall Street wrapped up the day with the S&P 500 surging 2.43 percent, its second straight gain.
Tokyo stocks jumped 2.4 percent at the open on Friday, continuing the trend.
Some US market watchers were ready to look past the upheaval of the last two weeks or so, which has shaved an estimated $8 trillion off world markets.
The US growth report, though it covered only through June, confirmed the economy has not yet been hit much by China’s downturn. It added to other strong recent data on consumer confidence and durable goods orders.
Speaking in New Orleans on the 10th anniversary of the Hurricane Katrina disaster, President Barack Obama said that, amid the “worries about China and about Europe,” that the United States, “for all challenges that we still have, continues to have the best cards. We just have to play them right.”
– Fed in focus –
Eyes were turning toward the central banking symposium that the US Federal Reserve was hosting in Jackson Hole, Wyoming from Thursday to Saturday.
Fed Chair Janet Yellen is not attending, but her deputy, Stanley Fischer, will make keynote remarks on Saturday that could point to whether the central bank believes the global turmoil is severe enough to hold off on a long-expected hike in interest rates.
On Wednesday New York Federal Reserve head William Dudley, seen as close to Yellen and Fischer in his thinking, said that the Chinese turmoil had made the arguments for a rate rise in September “less compelling.”
“The slowdown in China could lead… to a slower global growth rate and less demand for the US economy,” he said.
But Michael Taylor, head of British investment adviser Coldwater Economics, said that the global fall in prices, especially of key commodities like oil, will turn into a pickup in global demand over the next half year.
“I think just the uncertainty will keep the Fed on hold, even though monetary conditions are turning up, and you should expect global demand to pick up with it over the coming six months,” he said.