Wall Street advanced yesterday after better-than-expected US retail sales data offered a ray of light in the gloom and helped European markets extend sharp gains, bolstered by a short-selling ban.
Dealers said the US data suggested the economy might not be in such bad shape after all, reassuring nervous investors trying to get ahead of the curve after trillions of dollars have been lost in the mayhem of the past few weeks.
London’s FTSE 100 ended the day up 3.04 per cent at 5,320.03 points, Frankfurt’s DAX climbed 3.45 per cent to 5,997.74 points and the CAC 40 in Paris jumped 4.02 per cent to 3,213.88 points.
In Italy, which announced plans for €45 billion in new austerity measures, the FTSE-MIB surged 4.0 per cent to 15,888 points.
Madrid’s Ibex-30 rose 4.82 per cent to 8,647.3 points.
European markets recovered from a weak start as a short-selling ban in France, Italy, Spain and Belgium took the pressure off the banks which have been especially hard hit by rumours about their financial health given their exposure to debt-laden eurozone states such as Greece.
Germany upped the ante by calling for a Europe-wide ban as “the only way to tackle destructive speculation convincingly.”
The move echoes steps taken at the height of the global financial crisis sparked by the collapse of Lehman Brothers in 2008.
Dealers were sceptical that the ban would have any long-lasting effect given the deep underlying economic and debt problems in the United State and Europe which some fear could produce a new recession.
In New York, the blue-chip Dow Jones Industrial Average was up 1.74 per cent to 11,337.02 in late morning trading, while the broader S&P 500 rose 1.23 per cent to 1,187.02 and the tech-heavy Nasdaq Composite added 1.15 per cent to 2,521.27.
US retail sales rose 0.5 per cent in July after a gain of 0.3 per cent in June as consumers – who account for some two thirds of the economy – spent more on fuel and snapped up electronics and appliances, official data showed.
Barclays Capital analyst Peter Newland said the data were “a strong start” for the third quarter that should translate into solid growth.
“Alongside a likely further boost to auto sales, real consumption growth should be significantly stronger in the third quarter than the second,” he said.
Paul Dale at Capital Economics said the figures reinforced hopes that the US economy would pick up in the third quarter after virtually stalling in the second and so avoid slipping back into recession.
The US sales data also helped pull up European shares.
Jane Foley at Rabobank said the US experience in 2008 was that such bans were not really enough to tame markets in a panic, adding that the gains could not mask the underlying tensions over the eurozone debt crisis.
Short-selling is when an investor gambles a share price will fall, agreeing to sell a stock at its existing price even before he actually owns it.
If the price then falls, the investor can buy the stock at the lower price just before agreed delivery to the buyer and pocket the difference.