Equities markets around the globe participated in a global rally on Thursday as the latest round of data reports surprised on the upside and news trickling out of the G20 summit in London stoked hopes of a definitive agreement from the twenty world leaders.
US auto sales please
European equities were already enjoying a strong trading session even
before the US announced its auto sales figures for March, which revealed
a smaller-than-expected decline of 37% and boosted hopes that the
apparent bottomless pit the industry has fallen into could turn out to
have a bottom after all.
G20 followers get optimistic
But the main focal point was the G20 meeting taking place in East
London, where world leaders were reportedly bashing out a deal to
present a united front to alleviate the current global financial
downturn and prevent any future reoccurrence.
Among items detailed in the meeting’s communiqué, leaked to the UK press, was a move to increase regulation of large hedge funds via the creation of a new supervisory agency and a strengthened International Monetary Fund.
The IMF could reportedly see its resources available to countries hit by the current crisis increase three-fold to $750 billion if the world leaders reach an agreement. News of the agenda spurred on hopes that the summit could turn out to be fruitful after all, as previous forecasts had been for a united front to be displayed by the nations involved but for very little actually concrete decisions to be made. Should the summit fail to meet up to these heightened hopes, however, we are likely to see the extended rally that has occurred in UK markets at least, undergo a severe u-turn in the coming treading sessions.
But for now, renewed optimism and a round of supportive economic data is underpinning global market gains. Financials stocks and commodity players in particular have gained across Europe today on the back of G20 stimulus hopes.
US economic reports boost markets
Among other catalysts was news that the US Financial Accounting
Standards board will relax accounting rules that have taken a fair bite
out of banks’ balance sheets in the past. The FAS’s new mark-to-market
accounting guidance will become effective by the second quarter of 2009.
Sticking with the US, new factory orders saw their six-month losing streak come to an end in February, increasing by higher-than-expected 1.8% following a revised 3.5% fall in the previous month.
Together, the US auto sales and factory orders data helped to distract investors from the nation’s rising unemployment figures, which showed a larger-than-forecast rise of 12,000 last week to hit the highest level in over 26 years of 669,000.
UK data also gives cause to celebrate (modestly)
Putting the initial jobless claims data to one side—no mean
feat—economic figures coming out of the UK was also encouraging. On this
side of the Atlantic, UK house prices rose in March for the first time
since October 2007, although the Nationwide Building Society, which
conducted the survey, warned against reading too much into this
development. The average price of a house in the UK rose by 0.9% last
month following the previous month’s 1.9% decline. Another survey, this
time conducted by the Bank of England, pointed to lenders becoming more
willing to extend credit to borrowers.
In line with this latter survey, the government today signed a deal with the Royal Bank of Scotland and NatWest for the bank and its subsidiary to lend £1 billion to small businesses as part of the Working Capital Scheme. The government also said it is in talks with two other UK banks
ECB signals switch to monetary easing
Looking wider afield, one of main economic moves of interest today was
the European Central Bank’s shock decision to cut its main interest rate
by 25 basis points, rather than the 50 basis points expected, to 1.25%
ECB President Jean-Claude Trichet signaled that further cuts could be
possible, but economist Jörg Radeke of the Centre for Economics and
Business Research said following the announcement that today’s rate cut
was “a clear sign that the European Central Bank will abandon efforts to
change interest rates directly soon, focusing on alternative monetary
policy instruments.” Radeke said that one of the options likely to be
considered is an extension of the ‘liquidity management scheme’, under
which euro banks can borrow unlimited liquidity at a fixed rate for up
to six months. “The bank is likely to extend the borrowing period to
nine or twelve months in an attempt to provide more liquidity and drive
money market rates down further,” Radeke said.
Cheers all round
All in all, today’s economic news from around the globe and hopes the
worst of the recession could indeed be behind us fuelled a 1.4% gain in
sterling against the dollar at last check, to $1.47, while the euro
slipped to just over 91 pence. In late London deals, the UK’s FTSE 100
index had jumped 4.3%, North America’s Dow Jones index was 3.5% higher,
France’s CAC40 index was up 4.6%, and Germany’s leading DAX index was a
whopping 5.4% ahead. Cheers all round.
