Global equity markets rallied yesterday while the dollar pared losses against the euro as surprisingly strong US housing and labour market data signalled strength in the world’s largest economy.
Strong demand at a Spanish debt auction added to bullish sentiment on riskier assets, while crude oil prices climbed.
The S&P 500 hit levels not seen since late December 2007 as reports showed new claims for US unemployment benefits tumbled to a five-year low last week and housing starts surged last month.
“The unemployment claims were nice, the housing starts were nice, so that is positive for us. There are some good positive vibes out there,” said Harry Clark, chief executive of Clark Capital Management Group in Philadelphia.
The Dow Jones industrial average was up 112.55 points, or 0.83 per cent, at 13,623.78. The Standard & Poor’s 500 Index was up 11.58 points, or 0.79 per cent, at 1,484.21. The Nasdaq Composite Index was up 25.95 points, or 0.83 per cent, at 3,143.49.
World stock markets, which have largely drifted sideways this week, rose 0.6 per cent and were on track to hit a 20-month high. European shares closed 0.5 per cent higher.
In Europe, the main focus was on Spain’s success in selling €4.5 billion of new bonds at a lower cost than in the previous auction, signalling growing confidence among investors in the outlook for the recession-hit euro area. Spanish 10-year yields edged higher on the day at 5.078 per cent but were down from a session high of 5.174. Equivalent Italian yields were near session lows at 4.183 per cent.
The benchmark 10-year U.S. Treasury note was down 20/32, with the yield at 1.8874 per cent. The US dollar extended gains versus the yen and pared losses versus the euro after the strong US data. The greenback last traded at 89.83 yen, jumping 1.6 per cent on the day. The dollar fell 0.7 per cent versus the euro at $1.3378 a level that represented a session high for the euro.
The euro and the dollar were already higher against the yen after Japanese Economy Minister Akira Amari was quoted as saying his recent comments on the negative impact of a weak yen had been misinterpreted.
The yen has been falling ahead of a Bank of Japan meeting next week at which policymakers are widely expected to adopt a two per cent inflation target and perhaps extend the current asset purchase programme.