A rise in oil prices to a six-week high and signs that US inflation remains in check helped reverse a day-long decline in world equity markets yesterday.
The Federal Reserve raised benchmark US interest rates by 0.25 percentage points, as expec-ted, at the conclusion of a two-day policy meeting and said growth in the economy continued to look strong. The Fed’s measures of inflation were little changed, helping reassure investors the central bank may not raise rates more than three times this year.
“The positive for the market is that the focus on future rate hikes seems more due to a Fed view of a better economy than necessarily inflation prevention. If the economy can grow with moderate inflation, that is certainly the ideal situation for stocks,” said Rick Meckler, president at LibertyView Capital Management in Jersey City, New Jersey.
The Dow Jones Industrial Average rose 190.7 points, or 0.77 per cent, to 24,917.97, the S&P 500 gained 15.12 points, or 0.56 per cent, to 2,732.06 and the Nasdaq Composite added 30.91 points, or 0.42 per cent, to 7,395.21.
World markets had traded lower after the Wall Street Journal reported China planned counter-measures against US tariffs. EU shares fell and investors scurried for the safety of German government bonds and Japanese yen.
Shares of Facebook rebounded one per cent after two days of steep losses that had wiped some $50 billion off its share value. Those declines, caused by uproar over the alleged misuse of user data, filtered through the tech sector, with technology companies in the benchmark S&P 500 down two per cent for the week.
A pan-European equity index was off 0.2 per cent after the WSJ report on China. The yen, typically bought during times of stress, rose to the day's high versus the dollar around 106.26 yen. “So far, we have seen low-level skirmishes, which are not material enough to affect the world economy. But if we see retaliation, and significant trade disruptions, it’s a different order or magnitude [which] could begin to affect global growth forecasts,” said Andrew Milligan, head of global strategy at Aberdeen Standard.
The WSJ report on potential Chinese tariffs comes as US President Donald Trump prepares to announce on Friday up to $60 billion in import duties on Chinese goods. Mr Trump imposed tariffs on imported steel and aluminium earlier this month.
This week’s meeting of finance ministers and central bankers of the world’s 20 biggest economies failed to defuse tensions, with the G20 saying only that it recognised the need for more “dialogue and actions”.