Strengthening of the Chinese Economy and Eurozone Boosted Stocks

Last week, stock prices rose on most global exchanges, thanks to signs of strengthening in the Chinese economy and the Eurozone, although trading was cautious as the U.S. Fed could reduce stimulus monetary measures as early as September.

Last week, stock prices rose on most global exchanges, thanks to signs of strengthening in the Chinese economy and the Eurozone, although trading was cautious as the U.S. Fed could reduce stimulus monetary measures as early as September.

On Wall Street last week, the Dow Jones fell by 0.5 percent to 15,010 points, while the S&P 500 rose by 0.5 percent to 1,663 points, and the Nasdaq index increased by 1.5 percent to 3,657 points.

The first rise in the S&P 500 and Nasdaq indices, after two weeks of decline, is attributed to signs of strengthening in the Chinese economy and the Eurozone.

According to a report from HSBC, the PMI index of industrial activity in China rose in August, signaling that growth in the world’s second-largest economy is stabilizing after a long period of slowdown.

In the Eurozone, industrial activity in August reached its highest level since June 2011, indicating further strengthening of the economy in that bloc after it emerged from recession in the second quarter.

“It seems that Europe is gaining momentum again, especially Germany. The numbers are not impressive, but they are good,” says Dough Cote, market strategist at ING U.S. Investment Management.

However, caution prevails in the market due to investor uncertainty regarding when the Fed will begin to reduce its $85 billion monthly bond-buying programs for government and mortgage-backed securities.

Last week’s released excerpts from the minutes of the Fed’s July meeting did not provide a clear answer to that question. Almost all central bank leaders agree that it is not yet time to reduce stimulus, and only a few believe that some reduction should happen soon.

“The minutes did not tell us much. They showed us that Fed leaders, like all of us, are confused because there are no clear signals from the economy, which is growing, but not fast enough. However, I think it is clear that the Fed will not hit the brakes on stimulus, but will only ease off the gas. The question is, however, how much,” says Erik Davidson, director at Wells Fargo Private Bank.

Many analysts believe that central bank leaders will reduce stimulus measures at their first upcoming meeting in September, which investors fear could lead to the market losing strong support.

Insufficiently fast economic growth, anemic corporate earnings, and uncertainty regarding the reduction of Fed’s stimulus measures are causing investors to be cautious, leading to trading volume on Wall Street last week being significantly below average.

“Uncertain trading is expected on the exchanges in the coming days. The Fed’s meeting in September will be crucial, and investors will closely monitor U.S. GDP data, personal consumption, consumer confidence index, and durable goods orders, especially the latest weekly unemployment data in the U.S.,” says Boris Mažurin, an analyst in the Economic Research Department of Hypo Alpe Adria.

On most European exchanges, stock prices fell last week. The London FTSE fell by 1.4 percent to 6,492 points, while the Paris CAC dropped by 1.3 percent to 4,069 points. The Frankfurt DAX, on the other hand, rose by 0.3 percent to 8,416 points.

On the Tokyo Stock Exchange, the Nikkei index rose by 0.1 percent last week to 13,660 points.