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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

World stocks hit record highs as Dow keeps rising - as it happened

The financial sector in Canary Wharf, London.
The financial sector in Canary Wharf, London. Photograph: Victoria Jones/PA

That’s all for today, after a lively session that saw MSCI’s all-country index hit record highs this morning.

But with Europe ending lower, and a mixed close on Wall Street, the rally may be taking a breather.

I’ll be back in the morning to see if world markets can hit fresh highs again. Goodnight!

Updated

Dow makes it six closing highs in a row

DING DING! The closing bell has rung on Wall Street, and the Dow Jones industrial average has hit a new closing high for the 6th day running.

But it’s only a small move - the Dow ended the day up 7 points, or a meagre 0.04% at 20,619 points.

The broader S&P 500 index, and the tech-focused Nasdaq both finished marginally lower, after five days of gains.

Energy stocks ended the day in the red, with Chevon down 1.9% and Exxon down 1.1%. Caterpillar was another faller, down 0.85%.

But Cisco Systems gained 2.4% and Coca Cola bubbled up by around 1.9%.

With less than an hour’s trading to go, the Dow is down a modest 13 points or 0.06%.

Energy firms, such as Exxon Mobil and Chevron, and financial stocks such as Goldman Sachs have lost ground.

But tech firms, including Cisco and Intel, are up.

Updated

After a run of strong gains, the US dollar has dropped back today - suffering its biggest drop in two weeks.

Currency traders are having second thoughts about the chances of an interest rate hike in March.

The dollar bounced on Tuesday after Fed chair Janet Yellen indicated it would be a mistake to leave rates unchanged for too long - but that move is fading, with investors keen to hear more details of president Trump’s tax and spending plans.

Here’s a couple of shots from the New York stock exchange, as traders watched the Dow Jones, the S&P 500 and the Nasdaq hit new alltime highs.

Traders working on the floor of the New York Stock Exchange (NYSE) in New York, U.S., February 16, 2017.
A trader works on the floor of the New York Stock Exchange at the Opening Bell in New York, New York, USA, on 16 February 2017.

Fear Index hits two-week high

Traders are keeping a close eye on the famous Wall Street ‘fear index after it a two-week high today.

The CBOE volatility index, or VIX, is now at its highest level since the end of January, following an 11% surge yesterday. That’s a sign that investors are somewhat jittery about the solidity of the market rally.

The VIX is calculated from the cost of buying options on the S&P 500 in a month’s time, so shows if traders are trying to protect themselves from a crash.

It’s still quite low in historical terms, at around 12.05 right now.

The VIX
The VIX Photograph: Thomson Reuters

Shares have been driven high in recent weeks by Donald Trump’s promise of a ‘phenomenal’ tax reform plan.

However, we still don’t have any details...and that is starting to worry some investors.

Tracy Maeter, global investment specialist at J.P. Morgan Private Bank in Philadelphia, says:

“Some of these policies are game changers to certain sectors, and the market is being somewhat rational in terms of taking a bit of a breather before we have more facts as opposed to plans or intention.

Trump is giving a press conference now, to announce his nomination for Labor secretary. It’s Alexander Acosta, dean of Florida International University College of Law.

He’s taking the opportunity to lambast the media, but not to outline any stimulus measures.

Larry Elliott:Crash is a way off, but its coming

Our economics editor, Larry Elliott, fears that the market boom will turn sour, eventually.

He writes:

For the time being, Wall Street is being supported by negative real interest rates and the prospect of tax cuts to come. That means stock market records will continue to be broken over the months ahead.

Until the moment comes when traders get spooked by rising interest rates, burgeoning budget deficits, protectionism or a combination of all three. Wall Street is getting intoxicated on irrational exuberance. But remember: the wilder the party, the bigger the hangover.

And here’s a chart of the CAPE index, which measures share prices compared to company earnings - and is back at levels seen before serious crashes....

The CAPE index

Hello again. European stock markets have ended the day slightly in the red, after helping to push global equities to record highs this morning.

In London the FTSE 100 finished down 24 points, thanks to some big names going ex-dividend, and drops in mining companies.

The pound strengthened a little during the day, breaking above $1.25 before dipping back.

The US markets are bobbing around the break-even level, having hit new alltime highs at the start of trading after the strong manufacturing report from Philadelphia.

US and European markets today
US and European markets today Photograph: Thomson Reuters

Emerging markets did better, with China and India both up 0.5%, Russia gaining 0.3%.

Speaking of Russia.... Joshua Mahony of IG reckons the unfolding firestorm over the Trump administration’s contacts with Moscow have hurt share prices.

He says:

Growing concerns about contact between President Trump’s team and Russia ahead of last November’s election has tempered the rally in global stock markets today, with the FTSE dropping back a little. A drop in the US dollar is a sign that markets are growing increasingly worried over whether any notable link can be found between Russian intelligence agencies and the Trump campaign team.

ABN Amro’s chief investment officer Didier Duret, says markets are being driven higher by recent solid economic data:

With the exception of politics, I have rarely seen such a network of positive signals.

“There is a momentum, we don’t know when it will stop, but at the moment it is strong. Investors are rather underinvested anyway and there is lots of cash so equities are the asset class of default in this environment.”

That’s a good moment for a break, but I”ll be back later with the market close....

US stock indices hit new record highs

NEWSFLASH: The US stock market has hit fresh highs at the start of trading in New York.

The Dow Jones industrial average, the S&P 500 and the Nasdaq have all moved higher, as the rally that has driven global markets to new heights continues.

.

Today’s strong housing data, jobs figures and manufacturing surveys are all helping to underpin optimism on Wall Street.

However... the VIX ‘fear index’, which measures nervousness in the markets, is pushing towards its highest level in a month. It’s still low in historic terms, though, as this chart shows:

.

A reader has got in touch about this morning’s reference to ‘animal spirits driving the markets’.

It’s a phrase popularised by John Maynard Keynes, who wrote about how optimism, rather than deep-rooted analysis, drives many of our decisions.

As he put it:

Most, probably, of our decisions to do something positive, the full consequences of which will be drawn out over many days to come, can only be taken as the result of animal spirits—a spontaneous urge to action rather than inaction, and not as the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities.

And bang on cue, here’s someone else using the term today too...

Although the surge in the Philadelphia Fed factory index to a 33-year high is impressive, it isn’t enough to make the US economy great again on its own.

Paul Ashworth, chief US economist at Capital Economics, explains why:

We do expect to see an acceleration in manufacturing output and employment growth this year but, just as we didn’t think that the downturn in 2015 and 2016 would plunge the wider economy into recession, we don’t expect this revival to spill over into much faster GDP growth. Manufacturing is simply too small a part of the overall economy now.

US factor gauge hits highest in over 30 years

Boom! Factories in the Philadelphia area are growing at their fastest rate in three decades.

That’s according to new research from the Federal Reserve Bank of Philadelphia, which provides fresh evidence that America’s economy is strengthening.

The Philadelphia Fed business conditions index has surged to 43.3 in January, the strongest reading since the mid-1980s.

Firms in the mid-Atlantic region reported a pick-up in new orders and shipments, indicating solid demand for their goods.

Updated

The latest US unemployment data also looks pretty decent.

Some 239,000 people filed new ‘initial claims’ to receive jobless benefit last week, up from 234,000, but less than expected.

Any reading below 240,000 is rather impressive, points out financial research group Bespoke Investment.

Updated

An electric light board designed as the US national flag at Times Square in New York.

Just in: The number of permits being granted to build a house in America has hit a 14-month high.

Permits for new construction jumped by 4.6% in January, to an annual rate of 1.29 million units - the highest number since November 2015. That may indicate optimism in the US construction sector.

However....the number of actual new housing starts dipped in January, by 2.6%. That’s still better than economist had expected, though.

Actually, Mr President....

I’m afraid Donald Trump’s upbeat tweet about the stock market hitting its ‘longest winning streak in decades’ may be a bit of Fake News.

Strictly speaking, the three main US stock market benchmarks have all hit record highs for five days in a row -- the first time this has happened in 25 years.

But this isn’t actually the longest winning streak on record, at all. Currently, the S&P 500 is only on its best run in under four years.

Marketwatch has the details:

In terms of winning streaks, the S&P has risen for seven consecutive trading days for its longest stretch of up days since September 2013, when it also rose for seven straight sessions. That’s according to Dow Jones data.

The Dow has gained for five straight days, its best stretch since December, and the Nasdaq has been up for seven sessions in a row, its best streak since its seven-session advance that ended Jan. 11.

The European Central Bank has just broken the news drought by releasing the minutes of January’s meeting.

They show that policymakers were keen to remain ‘patient’ and not tighten monetary policy too fast.

Here’s the key section:

The Governing Council was seen as well advised to remain patient and maintain a ‘steady hand’ to provide stability and predictability in an environment still characterised by a high level of uncertainty.

The recent increases in energy prices had thus far not translated into indirect or second-round effects on broader inflation.”

But are they right? After all, inflation has just surged to 1.8%, from 1.1% in December....

Away from the markets...the president of General Motors has arrived in Westminster for talks with the UK government.

On the agenda: GM’s plan to sell its Vauxhall division, which employs 4,500 people in Britain, to France’s PSA Group.

ITV’s Joel Hills snapped Dan Ammann arriving for talks with UK business secretary Greg Clark.

The unions are very concerned that jobs could be threatened by the sale, and are pushing Clark to offer guarantees to protect staff. After all, it has already made some mysterious pledges to Nissan to encourage it to keep making cars in Sunderland.

Look who wants to take the credit for the market rally.....

Here’s a chart showing how business activity and raw materials prices have both risen in recent months, hinting at stronger growth....

...and another one showing how consumer prices are rising faster than expected too.

Currency traders are taking a break from worrying about Brexit, says Jane Foley of Rabobank.

But once Britain actually triggers Article 50, to begin the exit process from the EU, the pound may come under more pressure again.

Foley says (via Reuters):

Once the talks start properly the full complexity of the situation will become a lot more obvious....

Sterling will be up for a rocky ride at the very best.”

Much of the FTSE 100’s weakness this morning is due to some major companies going ‘ex-dividend’ (meaning shareholders no longer quality for the next payout).

Chris Beauchamp of IG explains:

The FTSE 100 is trading modestly lower this morning, but most of these losses can be explained away by a number of big names going ex-dividend. BP, Shell, AstraZeneca and Imperial Brands are all trading without the benefit of the dividend, and with these heavyweights in the red it is going to be tough for the market to push higher.

Given the steady rally we have seen over the past week or more, however, some weakness is to be welcomed, taking a little heat out of the market. For now, the bulls remain unconcerned.

Having hit a one-month high yesterday, London’s stock market is slightly spoiling today’s narrative by dipping in early trading.

Mining companies and oil producers are falling, pulling the FTSE 100 down by 30 points to 7272.

That’s partly due to the pound gaining against the US dollar; up half a cent to $1.25, cutting the value of revenues earned overseas in dollars.

Other European markets are a little lower, after posting seven days of gains in a row - helping to drive global markets to record highs.

European stock markets this morning
European stock markets this morning Photograph: Thomson Reuters

Global stocks are now worryingly high, according to one well-respected measure that compares the price of shares with company earnings.

The Cyclically Adjusted price/earnings ratio (CAPE), formulated by economist Robert Shiller, is now almost 29; close to its level before the Black Tuesday crash of 1929.

But that doesn’t necessarily mean a crash is coming today - as FXTM chief market strategist Hussein Sayed explains:

Very few experts may disagree that valuations are overstretched, and that investors are willing to pay more premium on prospects of aggressive fiscal plans.

We can even go further to discuss that bubbles are being formed, and Professor Robert Shiller’s CAPE PE ratio supports this opinion as it approaches 29. However, bubbles may grow bigger, even much bigger before they burst, if animal spirits continue to drive the rally.

CAPE’s all-time record is actually 45 - a level hit in 2000 as the dot-com boom surged. That didn’t end well.....

CAPE
CAPE Photograph: Forex.com

Updated

Could Trump destabilise the rally?

Kathleen Brooks, research director at City Index, reckons that the rally has further to run -- despite concerns that valuations have risen too high.

US equity indices posted fresh record highs on Wednesday, and the FTSE 100 is less than 50 points away from its record 7,354 level reached in mid-January. The lead indicators for the markets, including the Dow Jones Transportation Index and the Russell 2000 also scaled to fresh heights, suggesting that this rally is here to stay, even as some economists and analysts’ rush to argue that markets are stretched, volumes are low and valuations are too high.

But.... Donald Trump could potentially sent the markets spinning, she adds.

The Russian Ruble was one of the worst performers yesterday, this came after President Trump tweeted that President Obama was too soft on Russia over its invasion of Crimea. What about the Trump/ Putin bromance that has been blossoming and driving the ruble higher?

We doubt that it is over, and would imagine that relationship has a long way to run. But it’s a keen reminder that President Trump, rather than valuation measures, are a bigger threat to the stock market rally.

There should be some red faces in the City over this stock market rally.

Many experts predicted that stocks would plunge if Donald Trump won the US election - instead, trillions has been wiped onto share values since November.

FT: US optimism sends markets to record levels

Optimism over American economy is helping to drive markets to record levels, says the Financial Times.

The FT argues that hopes for faster economic growth has “galvanised markets from the US to Europe”.

Wall Street has led the rally since Donald Trump captured the White House, hardening expectations that the US expansion will quicken just as the Japanese, Chinese and eurozone economies show signs of improvement.

And that has driven the FTSE All-World index (another measure of global markets) over its previous peak in 2015:

FT

World markets at record highs

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

World stock markets have hit their highest ever levels, as the bullish optimism rippling through global trading floor around the globe refuses to abate.

MSCI’s World Index, which tracks shares in 46 markets, has climbed over its previous high (set in 2015) overnight, and hitting 444.29 points for the first time ever.

The MSCI World Markets index over the last two decades
The MSCI World Markets index over the last two decades Photograph: Thomson Reuters

The surge came as US stock markets hit fresh peaks last night.

So what’s driving it?

1) Optimism over the global economy. Recent economic data has shown little sign that global growth is cooling off, despite last year’s Brexit shocks and upcoming elections in Europe.

2) Expectations of higher inflation. Prices are rising in America, Europe and the UK, with the US CPI hitting a four-year high yesterday. This is likely to lead to higher interest rates, with a US rate hike possible in March. So some traders will be selling bonds and shifting money into shares.

3) The Trump Trade. Investors are still betting that the US president will deliver on his pledges for a ‘phenomenal’ tax reform package, and infrastructure spending - despite Donald Trump’s various missteps since taking office.

Financial stocks have been surging since Trump beat Hillary Clinton to the White House in November.

Michael Hewson, chief market analyst at CMC Markets, has the details:

Whatever political problems President Trump maybe having on the staffing front with resignations and the like financial markets remain largely ambivalent, choosing to focus on last week’s promise to deliver something “phenomenal” in a couple of weeks’ time, as US markets hit new record highs for the fifth day in a row, driven by banks and financials.

Both Goldman Sachs and JP Morgan shares have hit record levels, with the financial sector up 22% since the 8th November, while here in the UK the FTSE250 has also managed to post record highs five days in succession, as UK stocks appear to be becoming a haven from political concerns in Europe.

Optimism about the global outlook is improving as economic data continues to improve and inflations starts to take hold, and last night’s positive US finish is set to wash through into another positive open this morning.

Also coming up today...

There’s not much in the economic calendar, apart from:

  • 12.30pm GMT: The European Central Bank publishes an account of its last monetary policy meeting
  • 1.30pm GMT: New US housing starts and building permits data
  • 1.30pm GMT: The weekly US jobless claims figures

Updated

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