World equity markets and the dollar advanced yesterday to end a rocky week on an upbeat note after Federal Reserve chair Janet Yellen said the Fed was on track to raise interest rates this year, and as US economic growth was revised upward again.
Stocks on Wall Street jumped following an almost three percent surge in Europe, after a report showed the US economy grew more than previously estimated in the second quarter, propelled by consumer spending and construction – the second upward revision in a row.
Gross domestic product grew at a 3.9 per cent annual clip, up from 3.7 per cent estimated in August, the Commerce Department said.
Yellen said that she and other Fed policymakers do not expect recent economic and financial market turmoil to significantly alter the central bank’s policy, easing concerns about the world’s economic health.
There is much to like about the US economy in the second half of the year, despite “all the global malaise”, said Jacob Oubina, senior economist at RBC Capital Markets in New York.
“What the market latched on to with Yellen’s speech on Thursday is that she’s in the 2015 camp for a rate hike. If the domestic economy holds in there, they are going to hike in December,” Oubina said.
The dollar rose 0.30 per cent to $1.1195 against the euro and 0.56 per cent to 120.73 against the yen. The dollar index rose 0.26 per cent.
MSCI’s all-country world index rose one per cent despite a tepid performance in Asia, where some markets were in the red after data showed Japan slipping back into deflation.
The Dow Jones industrial average rose 187.17 points, or 1.16 per cent, to 16,388.49. The S&P 500 added 13.02 points, or 0.67 per cent, to 1,945.26 and the Nasdaq Composite gained 7.03 points, or 0.15 per cent, to 4,741.50.
European shares rallied after testing 2015 lows in the previous session as concerns eased over how the global economy may be impacted by a slowdown in the world’s number-two economy, China. Still, that surge was not enough to prevent a decline on the week.
The pan-European FTSEurofirst 300 index closed up 2.78 per cent, while the eurozone’s blue-chip Euro STOXX 50 index finished 3.11 per cent higher.
Some investors said they were bullish on the longer-term outlook for European equities, given improving economic data and stimulus measures from the European Central Bank.
“Our six- to-12-month view is that this is another mid-cycle sort of correction that really began last year,” said Mike Wilson, chief investment officer at Morgan Stanley Wealth Management.