A combination of factors has boosted stock markets this morning with all major indices in the green, following on from a strong day in the US.
Last night the US Senate passed the deal to increase the debt limit while implementing substantial spending cuts. It averts any immediate risk of a US default that would have destabilised financial markets – even though I don’t think that risk was ever material. Shares in the US hit a nine-month high with the S&P 500 up 1 per cent and the Nasdaq 1.3 per cent.
That positivity is now spreading through Europe with the FTSE 100 up 0.6 per cent and the DAX and CAC 40 rising 0.7 and 0.9 per cent respectively.
So yes, it’s definitely the aversion of the collapse of global financial markets that’s boosting traders, but it’s been likely for the past 10 days or so that this was always going to happen, so there’s definitely more to look at. As discussed yesterday, the noise from US Federal Reserve members over a pause in rates at this month’s meeting is helping, as is falling inflation in the Eurozone, which showed the European Central Bank’s hard-and-fast approach to raising rates has some merit.
But above all of that is the simple idea there just isn’t anything for negative nellies to hang on to. Data from the US showed unemployment claimants rising, but weirdly that’s actually a positive as it shows that rates are working. And even then, it was in the range of expectation. So that’s all fine then.
This week’s trading typifies why it’s been such a chaotic five months this year, where we’ve been through all the stages of digesting a news cycle. ‘No news is good news’ all the way to ‘good news is bad news’, with positive economic data worrying traders about more rate hikes. Arguably, the UK is still in this conundrum but it feels like the US and Eurozone are more confident in their situations.
Of course, this can all change later. The non-farm payrolls are due out and any surprise on the upside, with the US adding jobs, will mean traders panic and dismiss the claims from the Fed that they will pause this month. The opposite is also true, and you can easily see any that demonstrates a cooling economy and people will immediately extend that pause to the decision at the end of July.
Either way, shares end the week on a much brighter note and certainly better than last week when debt ceiling fears really held everything back. We have a raft of PMIs out next week, so plenty more for traders to look at then.
