US shares ended with a rally based on the growing belief that the US Federal Reserve will not cut rates.
The rise followed a switch in direction in Europe, after another bad day on Chinese markets and a 1.6%, 78 point slide in Australia.
As a result of the Wall Street rally, our market will start up more than 60 points, or well over 1%.
Helping will be higher prices for oil and gold which drifted upwards in lacklustre trading, but spot iron ore prices fell 1.4% to $US57.28 a tonne. The Aussie dollar continued to trade above 71 US cents.
A series of economic reports yesterday were weaker than forecast (and they were top tier figures – retail sales and industrial production), leading investors to believe that the Fed will stay its hand on the long mooted rate rise.
Retail sales were up 0.2%, weaker than forecast, but core sales were up 0.4% better than forecast, but down on the 0.6% rise in July. Car sales were strong, but car production fell according to the Fed’s monthly industrial production report.
The report from the Fed showed manufacturing output fell 0.5% in August, hurt by a 6.4% drop in auto production, after rising 0.9% in July. That fall was due to the normal shutdown by some car plans to retool for new models. Production was flat when the auto data is stripped out. And the Empire states (around New York) survey of manufacturing activity from the Fed was also weak.
None of this would normally influence the Fed, but for some reason, investors got it into their heads that it would and up when share price, even though China had had another sell down yesterday. Europe though shook that off and closed higher with gains of 1% or more, after being in the red early on.
On Wall Street, shares ended the day with their third winning session of the last four, led by a rebound in industrials, financials and health-care stocks.
The S&P 500 jumped 25.05 points, or 1.3% to 1,978.09. The Dow surged 228.89 points, or 1.4%, to 16,599.85 and the Nasdaq Composite ended the day up 54.76 points, or 1.1% at 4,860.52.
In China, the Shanghai Composite Index slid 3.5% to close at 3,005.17, adding to its 2.7% loss on Monday. That pushed down shares elsewhere in the region, including Australia’s S&P ASX 200 which fell 1.5%, and the Hang Seng Index down 0.5%. Tokyo’s Nikkei rose 0.3%, but trimmed early gains after the Bank of Japan’s decision maintain its current easing program.
China’s CSI 500, a collection of small cap stocks, lost 5.8%, while the smaller tech-focused Shenzhen Composite, slumped 5%, after Monday’s 6.7% plunge.
The Shenzhen index is now at its lowest since February 16. In June it was sporting a 122% gain for 2015; now it’s less than 12%.
