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Portfolio > Economy & Markets

Relief rally spreads across markets as dollar gains on U.S. GDP

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(Bloomberg) — A relief rally is spreading around the globe, with Chinese shares snapping a five-day losing streak. The dollar strengthened and stocks extended gains after the U.S. economy grew more than forecast in the second quarter.

Shares rose in Europe and Asia while U.S. futures gained after the biggest advance in the Standard & Poor’s 500 Index in four years on Wednesday helped restore some appetite for riskier assets. Chinese stocks posted their steepest gains in seven weeks after a surge in the last hour of trading in Shanghai. People familiar with the matter said the government stepped in to shore up prices. 

The rally in U.S. stocks halted the selloff that’s engulfed global markets since China devalued its currency on Aug. 11, stoking concern the slowdown in the world’s second-largest economy threatened global growth. Data today showing a pickup in the U.S. economy bolstered confidence in the outlook, following the rout that erased $8 trillion from the value of global equities in two weeks.

“We got our pullback, and now we’re going to focus on U.S. things like GDP and the Fed,” said John Canally, chief economic strategist at LPL Financial Corp. in Boston. “When you’re in a correction, it’s not fun, but when you’re out, you can refocus on what matters.”

Raw-material producers led gains in Europe, with the Stoxx Europe 600 Index climbing 3.2 percent at 9:10 a.m. in New York. S&P 500 futures advanced 1.3 percent after the gauge jumped 3.9 percent on Wednesday. A gauge of commodities rebounded from a 16-year low. The dollar climbed 0.7 percent to $1.1232 per euro.

Russia’s ruble led a rebound in emerging-market currencies and industrial metals climbed with oil. Ukraine bonds jumped the most on record after the country reached a deal with creditors.

Oversold Levels

Volatility eased after gauges reached their highest levels since 2011 this week. Europe’s VStoxx Index fell 14 percent on Thursday, while the U.S. VIX dropped 26 percent in two days, the most in more than a month.

“There is a bounce from the oversold level,” said Veronika Pechlaner, an investment manager at Ashburton Ltd. in Jersey, the Channel Islands. “We believe the structural growth potential for China will gradually decline, but it doesn’t have to be a shock.”

Futures extended gains after a Commerce Department report showed U.S. gross domestic product rose at a 3.7 percent annualized rate, exceeding all estimates of economists surveyed by Bloomberg and up from the 2.3 percent. Labor Department data showed jobless claims fell to a three-week low last week.

The Bloomberg Dollar Spot Index rose 0.2 percent and the yield on 10-Year Treasuries increased one basis point to 2.19 percent.

The MSCI Emerging Markets Index advanced 2.7 percent, the most in two years, as valuations near the lowest level since March 2014 spurred appetite for riskier assets. The ruble jumped 2.8 percent and Taiwan’s dollar rose 1.4 percent, leading gains as a gauge of 20 currencies rebounded from a record low.

China Intervenes

The Shanghai Composite Index fell as much as 0.7 percent in the afternoon session before surging in late trading to close 5.3 percent higher. Hong Kong’s Hang Seng China Enterprises Index advanced 4.6 percent.

China’s government intervened to boost the stock market Thursday before a Sept. 3 military parade celebrating the 70th anniversary of the victory over Japan during World War II, according to people familiar with the matter, who asked not to be identified because the move wasn’t publicly announced.

Shanghai’s gauge, which dropped 43 percent from a June high through Wednesday, hasn’t spent an entire trading day in positive territory since Aug. 10, the day before China devalued its currency.

The correlation of China’s benchmark index with both S&P 500 futures and the yen climbed to the highest levels on record, according to data compiled by Bloomberg.

Ukraine’s $2.6 billion of sovereign notes maturing in July 2017 jumped 9.9 cents to 65.51 cents on the dollar, while bonds maturing next month rallied 7.3 cents to 65.55 cents.

Finance Minister Natalie Jaresko reached an accord with a Franklin Templeton-led creditor committee that includes a 20 percent write-down to the face value of about $18 billion of Eurobonds, the first of which matures in less than a month. Russia said it won’t participate in the restructuring.

The Jakarta Composite Index rose 4.6 percent and the rupiah gained 1 percent. Indonesia will give tax holidays to new companies investing at least 1 trillion rupiah ($71 million) across a wide range of industries, hoping to kick-start an economy growing at its slowest pace in over five years.

The Bloomberg Commodity Index climbed 1.6 percent, the most in more than two weeks. West Texas Intermediate crude futures rose as much as 4.7 percent to $40.40 a barrel and Brent added 3.8 percent to $44.76. Crude stockpiles fell by 5.45 million barrels to 450.8 million last week, the Energy Information Administration reported Wednesday, compared with an increase of 1.45 million forecast in a Bloomberg survey.

Copper climbed 1.7 percent on the London Metal Exchange, while nickel and zinc gained at least 2.4 percent. 

The cost of insuring corporate debt fell for the second time in three days. The Markit iTraxx Europe Index, which tracks credit-default swaps on investment-grade companies, declined three basis points to 71 basis points, according to data compiled by Bloomberg. An index of non-investment grade CDS dropped for a third day, falling 17 basis points to 325 basis points.

The yield on 10-year Treasuries was little changed at 2.17 percent. People familiar with the matter said China has cut its holdings of Treasuries this month to raise dollars needed to support the yuan in the wake of a shock devaluation two weeks ago.

–With assistance from Netty Ismail in Singapore, Kevin Buckland in Tokyo, Kyoungwha Kim in Hong Kong, Roxana Zega in Zurich, Cecile Vannucci, James Herron and Neil Denslow in London, Emma O’Brien in Wellington, Camila Russo in Madrid and Callie Bost in New York.


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