Most of the world’s stock markets had recovered from days of losses on Thursday, shaking off concerns about the health of the Chinese economy.
All of the main major US markets closed up more than 2% to round off a day of gains around most of the world as investors faith was restored by better-than-expected US gross domestic product (GDP) data.
The Dow Jones Industrial Average closed up 369 points (2.27%) to 16,655 points, which following on from a 619-point increase on Wednesday made it the biggest two-day rise since December 2008. The S&P 500 and the Nasdaq both closed up 2.4% to 1,987.7 and 4,812.7, respectively.
The resurgent markets helped lift the oil price, which had suffered big losses in recent weeks, by more than 10% – the biggest one-day gain since 2008. US oil rose by $3.96 (10.3%) to $42.56 a barrel.
US markets were lifted by figures showing a 3.7% increase in second quarter GDP 2015 up from the Commerce Department’s initial estimate of 2.3% growth. Economists had forecast a 3.3% rate.
“Consumer are spending, businesses are investing, the housing market is recovering, state and local governments are boosting outlays, and the federal government is no longer a drag on growth,” said Stu Hoffman, chief economist at PNC Financial. “Trade will remain a weak spot with slow global growth and the strong dollar, but solid domestic fundamentals will be more than enough to overcome this.”
The GDP numbers come ahead of a crucial meeting of the Federal Reserve in September when the governors may vote for the first increase in interest rates since the recession. The wild gyrations triggered by China’s apparent slowdown had led many to speculate that the Fed may hold off raising rates in September.
On Wednesday, Bill Dudley, president of the New York Federal Reserve and a member of the central bank’s rate-setting committee, said a September interest rate rise was “less compelling” than it had been a few weeks ago.
Dudley also sought to reassure investors that a recent global stock market rout did not reflect a problem with the US economy.
The indication that a rate rise would be delayed helped to calm investors unnerved by the prospect of an imminent tightening in credit costs in the world’s largest economy. The prospect of a rate increase had also alarmed global stock markets because it could draw investment funds out of emerging markets and back to the US.
Dan Greenhaus, chief strategist at broker BTIG in New York, said the GDP figures are likely to have a big impact on policymakers. “Fed officials are likely to view the economy as having a bit more ‘oomph’ than originally thought heading into Q3,” he wrote in a note to investors. “Whether they want for more info or not aside, the economy clearly snapped back to a healthy degree from Q1’s weakness.”
Markets in most of the rest of the world also closed higher on Thursday. The FTSE 100 in London clawed back almost all its losses this week after it closed 3.5% higher. Germany’s Dax closed 3.2% higher at 10,315 and France’s Cac was up 3.5%.
Stocks were also up across Asia after a week of turmoil on the international markets. China posted its biggest one-day jump since 9 July after six days of heavy losses. In Japan, the Nikkei closed 1.08% higher, while South Korea’s Kopsi rose 0.54%.
However, there were warnings that the rally could prove to be a “dead cat bounce” as the core concerns over the health of China’s economy remain.
Tony Cross, market analyst at Trustnet Direct, said: “Volatility like this doesn’t tend to disappear fast and with volumes set to thin out ahead of the long weekend, there’s certainly the prospect of seeing more big moves in the near term.”
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