World stocks hit record highs after strong China and US data

• World stock surge as China and US data bolsters global recovery hopes
• The FTSE 100 Index hits pre-pandemic levels as UK stocks climb higher
• Inflationary monetary policy could expose savers to negative interest rates for years
• Pound Sterling (GBP) exchange rates find bullish support

World stocks surged to record highs on Friday after the US and China posted robust growth data and bolstered expectations of a solid global economic rebound.

After months of COVID-19 restrictions, which prompted governments and central banks to produce stimulus to support their relative economies, signs of recovery are beginning to emerge.

Coronavirus vaccination programmes are also helping to lift stock markets higher, with data collected by Bloomberg showing that more than 848 million vaccine doses have been administered across 154 countries as of April 16th.

With vaccine deployment considered key to a sustained reopening of the global economy, signs that the economic reopening is accelerating should ensure world stock markets remain on a solid footing.

The MSCI World Market Index jumped up by 0.2% during London trading hours to record an unprecedented high. Europe’s top indexes, including the UK’s blue-chip FTSE 100 Index, which breached 7,000 points today, also opened higher on Friday.

The FTSE 100 surged to a high of 7,037.65 earlier during the London trading session. Nick Peters of Fidelity International notes that as “global recovery becomes more established, this should continue to translate into positive UK stock market performance.”

Economic recovery has been boosted by government support stimulus packages and central bank stimulus, increasing aggregate demand and countering recession risks.

The S&P 500 has also continued its advance and is currently up by 8.04 points or 0.14% at 4,178.65. However, US stock appears to be more mixed than European bourses as the Nasdaq Index has fallen by 0.12% or -16.15 points to 14,022.62, albeit the index has had its fair share of gains during the last few weeks.

Driving a move higher in world stocks is economic data out of the US and Chinese, both of which outperformed.

China and US data drives move higher in global stocks

According to official data, the Chinese economy expanded by 18.3% in Q1 of 2021.

While the reading fell slightly short of consensus expectations, strong growth recorded in the retail sector has boosted risk appetite.

Nordea Asset Management Senior Macro Strategist Sebastien Galy commented: “We remain focused on a China-led rebound steadily helping the Asia-Pacific region, and the unlocking of other economies should further support economic activity in Asia.”

However, China’s relatively upbeat gross domestic product (GDP) figures were mitigated by suggestions that Beijing will step in and pull the reins in on growth later in the year to prevent the economy from overheating.

Several countries such as India and most European member states have also reimposed or extended lockdown restrictions could delay global recovery and increase anxiety amongst investors over the coming weeks.

Economists have also noted the losses inflicted on several financial services firms this year following the GameStop headache and the Archegos hedge fund meltdown, which has emerged as the Achilles heel of financial markets.

While most believe that the financial hit was isolated to specific banks and investors, the impact of the GameStop-Archegos incidents has rippled across the financial system.

Concerns have also been raised over signs that the bond and stock market has become so dependent on ultra-loose monetary policy that central banks can do little to stave off a panic attack when conditions appear to be changing.

Have financial markets become reliant on inflationary monetary policy?

Earlier this year, an indication that inflation could rise between this year and the next sent financial markets into panic mode.

However, it appears that central banks are at a crossroad over what they can do to taper the tantrum as anxiety over whether there will not be any inflation also triggers sharp movements in stock and bond markets.

It seems that the “new normal” is a world beset with massive QE programmes and rock-bottom interest rates, courtesy of the coronavirus pandemic.

In that view, those with hopes to return to some form of savers’ paradise will be sadly mistaken. Recent inflationary monetary policy measures have made it all but possible for central banks to raise nominal interest rates without sending investors into panic mode. In that view, interest rates will likely be kept as low as possible for the next few years.

Despite inflationary pressures, strong China and US data have driven equity markets higher, and the brightening global recovery prospects could continue to lift indices.

Like China, the United States recorded record growth for retail sales in March, with activity in the sector rebounding 9.8% month-on-month to drive sales 17.1% above pre-pandemic levels.

Separate data also revealed that the number of people in the US claiming unemployment benefits slipped to their lowest levels since March 2020 – when American states imposed COVID-19 lockdown restrictions.

The brightening economic prospects have also driven the FTSE 100 higher on Friday, and improved recovery hopes could continue to lift stocks in London.

FTSE 100 soars amid bolstered optimism

The FTSE 100 Index extended Thursday’s gains and rose by 54.15 points on Friday to 7,037.65 points, supported by the global stock market rally and improvements in value sectors such as oil, triggered by a crude price rally which boosted BP and Shell.

Amongst the top risers were telecoms group BT (LON: BT.A), Tesco (LON: TSCO), Next plc (LON: NXT) and Evraz plc (LON: EVR), which has claimed the top risers spot.

UK banks, including Barclays and NatWest Group, also rallied on Friday, while the British American Tobacco plc (LON: BATS) closed 2.80% higher.

In the foreign exchange (FX) market, improved optimism has driven pound Sterling (GBP) exchange rates higher across the board, while currencies such as the US dollar (USD) and the euro (EUR) have bottomed out.

Pound Sterling finds support after a choppy week

Pound Sterling (GBP) has gone back and forth during the trade week, and there was some choppy behaviour in trade against some of its major rivals during Friday’s session.

After last week’s profit-taking, investors attempt to buy the British pound (GBP). However, the UK currency lacked any fresh upside momentum as the strong fundamental recovery narrative that investors are looking for is still absent for GBP.

Several market analysts had said that traders had already priced in positive UK news and that we’re unlikely to see the same bullish conviction from pound Sterling (GBP) that we saw at the start of 2021.

However, the British pound (GBP) is outperforming against many of its rivals heading into the North American session, reclaiming losses against the US dollar (USD), euro (EUR), Australian dollar (AUD) and other major currencies.

At the time of writing, the British pound to US dollar (GBP/USD) exchange rate is trading 0.3% higher at USD 1.3823, while the British pound to euro (GBP/EUR) currency pair has reemerged above EUR 1.15.

Pound Sterling (GBP) has also rallied against the risk-sensitive Australian and New Zealand dollars, which tend to perform stronger during increased bouts of risk appetite.

The British pound to Australian dollar (GBP/AUD) exchange rate has surged by 0.5% to AUD 1.7871, while the British pound to New Zealand dollar (GBP/NZD) currency pair is up by a resounding 0.8% at NZD 1.9362.

That said, AUD and NZD appear to have been undermined by slightly weaker-than-expected Chinese growth data and could recover against GBP over the coming week.