Global stock markets rose on Thursday after new figures suggested that the United States is not heading towards a recession, while Britain registered another quarter of growth.
A rise in America’s retail sales and strong results from Walmart allayed fears about the world’s largest economy.
In London, the FTSE 100 rose by 66.30 points, or 0.8 per cent, to 8,347.35, its best day in more than a week, after the Office for National Statistics said that the UK economy had grown by 0.6 per cent in the second quarter, after achieving growth of 0.7 per cent in the first quarter of the year. It was driven by a strong performance in the services sector.
• Forget US jobs data — Tokyo’s rate rise began the global sell-off
The boost to share prices marks a sharp reversal for markets on both sides of the Atlantic. Billions were wiped off stocks worldwide in a huge sell-off last week amid fears that the US economy was heading for a downturn. The volatility was exacerbated by Japan raising its interest rates.
American retail sales rose by 1 per cent in July from June, the biggest increase recorded since early 2023, according to the US Department of Commerce.
The report, which revealed rises in sales of electronics, motor vehicles, home furnishings and groceries, suggested that Americans continue to show resilience in the face of higher borrowing costs and an uncertain economic outlook.
“It now looks likely that overall consumption growth accelerated last month and our estimate of third-quarter GDP growth is closer to 2 per cent on an annualised basis,” Capital Economics, the consultancy, said.
A separate report showed that the number of Americans filing new applications for unemployment benefit had fallen last week to a one-month low.
US stocks rose and government bonds were sold off following the data releases. The S&P 500 was up by 1.5 per cent, taking it out of negative territory for the month as the benchmark index made a full recovery from the early August sell-off. In the bond markets, the yield on the interest rate policy-sensitive two-year treasury note climbed by as much as 0.17 percentage points to almost 4.12 per cent. Yields rise as prices fall.
It comes after the government reported a surprise deterioration in the labour market this month, raising fears of a recession and contributing to the global markets sell-off.
Ronald Temple, chief market strategist at Lazard, said the latest numbers on sales and jobless claims “offer yet more evidence that recession risk remains low in the US, even as the economy decelerates from unsustainably strong growth levels. The case for the Fed to ease [interest rates] by 25 basis points is rock solid, but there is little evidence to suggest a need for a 50-basis-point reduction.”
Richard de Chazal, an analyst at William Blair, said: “Once again, this was further evidence that the US consumer still has the ability to surprise to the upside. This was another solid report and is inconsistent with a consumer who is on the brink of collapse.”
Steve Wyett, chief investment strategist at BOK Financial, said: “The economy is not going into a recession imminently.”
Walmart, the American retailer, has increased its annual sales forecast as consumers prioritise spending on low-cost essentials. It said that its US like-for-like sales had risen by 4.2 per cent to $115.3 billion in the three months to July 26, a higher growth rate than in the previous two quarters.
John David Rainey, its chief financial officer, said the company has not seen any signs of a slowdown in sales since the start of August. “Things have been remarkably consistent,” he said. “I know everyone is looking for some piece of information that maybe indicates further weakness. With our members and our customers, we’re not seeing it.”
Markets are pricing in fewer than four quarter-point interest rate cuts this year, compared with just over four earlier in the week, which would necessitate a half-point cut, since there are only three federal open market committee meetings remaining before January.
“Yesterday, I was 50-50 on whether the Fed was going to cut [rates by] 25 basis points or 50 basis points [in September],” Mike Zigmont, head of trading and research at Harvest Volatility Management, said. “Today, I’m 75-25 that they’ll only cut 25 basis points.”
The Bank of England cut its interest rates for the first time in four years this month to 5 per cent, with City traders expecting at least one more rate cut before the end of the year. Analysts at Capital Economics said the base rate would fall to 3 per cent by the end of next year. The UK economy has recovered well after a short-lived recession at the end of 2023, with falling consumer prices inflation helping to boost household spending and business confidence.