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Dow Jones surges over 400 points at opening bell as US markets rally Global market turmoil makes planned interest rate rise 'less compelling'
(about 2 hours later)
US stock markets rallied strongly on Wednesday as global stock markets attempted to shake off days of sell-offs amid fears that China’s economic boom is stalling. The global turmoil in stock markets has made a September interest rates rise “less compelling”, an influential policymaker at the Federal Reserve said on Wednesday.
The Dow Jones Industrial Average opened up over 400 points (2.62%) while the S&P was up 46.5 points (2.39%) and the Nasdaq was up 135 points (2.75%). All three indices closed down on Tuesday after an early rally proved unsustainable. Bill Dudley, the president of the New York Federal Reserve and a key member of the US central banks rate setting committee, said: “The decision to begin the normalization process at the September FOMC [Federal Open Market Committee] meeting seems less compelling to me than it was a few weeks ago.”
The US rally came as Asian and European markets fell. In China a rally on the Shanghai Composite index collapsed and the market closed down another 1.3%, to its lowest level since December. Over the past three days the index has lost close to a quarter of its value. In London the FTSE 100 index of leading blue-chip shares had shed 82 points, or 1.3%, as Wall Street prepared to open. Dudley’s comments, at a press conference in New York, came as US stock markets lost most the gains they made in morning trading. The Dow Jones Industrial Average was up 212 points (1.35%) at 12pm, falling back from opening up over 400 points. The S&P 500 was up 22.5 points (1.19%), from opening up 46.5 points. The Nasdaq was up 58.1 points (1.26%), down from a 135-point rise.
The US futures markets – an unreliable indicator of market trends – suggested a strong opening of more than 2% for the Dow Jones Industrial Average and S&P 500. Markets were preparing to open amid signs that the US economy is still on track. The Commerce Department announced on Wednesday that orders of durable goods (long-lasting manufactured goods) spiked by 2% in July, surprising economists who had expected a 0.4% decline. European stocks also fell at the close on the other side of the Atlantic. The FTSE 100 index of blue-chip shares closed down 102 points to 5,979. It has now fallen for 11 of the last 12 days (on Tuesday it jumped by 188 points), and is currently 15% off its record high.
But futures markets were also up ahead of Tuesday’s opening and initially the Dow put on 300 points as investors came back to the market. Those gains had all gone by the end of the day. Stock markets around the world have seesawed between gains and losses in recent days. The Dow lost 1,000 points early on “Black Monday” only to gain most of that back Tuesday and then lose it again. Germany’s DAX and Spain’s IBEX both lost 1.3%, and the French CAC dropped 1.4%.
Jack Ablin, chief investment officer at BMO Private Bank, said more volatility was likely in the coming weeks and stock markets were likely to lose more ground. Ablin said stock market gains had outpaced the growth in the real economy and a correction was inevitable. “We still have a relatively expensive market,” he said. “The economy is good but it’s not that good. The market is too far ahead of the wider economy.” In China a rally on the Shanghai Composite index collapsed and the market closed down another 1.3%, to its lowest level since December. Over the past three days the index has lost close to a quarter of its value.
Dudley, a dovish policymaker and close ally of Fed chairwoman Janet Yellen, did leave the door open to raising rates for the first time in nearly a decade when the US central bank holds a policy meeting 16-17 September. He said a rate hike “could become more compelling by the time of the meeting as we get additional information on how the U.S. economy is performing and ... international financial market developments, all of which are important to shaping the US economic outlook”.
It comes after Lawrence Summers, a former US Treasury secretary, warned that raising rates soon would be a “serious error” and raised the prospect of restarting quantitative easing.
“A reasonable assessment of current conditions suggests that raising rates in the near future would be a serious error that would threaten all three of the Fed’s major objectives: price stability, full employment and financial stability,” Summers said in an opinion piece for the Wall Street Journal.
He also posted on Twitter to warn that “we could be in the early stage of a very serious situation”.
Economists at Barclays have also pushed back their forecast for a rate rise from next month to March.