The strongest growth for the world’s largest economy in over a decade meant there was plenty of pre-Christmas cheer in global markets on Wednesday, as stocks continued their strong run and the dollar hovered at an 8-1/2 year high.
Risk appetite was boosted after data on Tuesday showed the US economy grew at a stellar 5.0% in the third quarter, the quickest pace in 11 years and the strongest sign yet that growth has decisively shifted into higher gear.
The data drove both the Dow Jones and the S&P 500 benchmark US indexes to record closing highs, and Asia and Europe saw their stock markets edge up in synchrony in largely quiet pre-holiday trading.
It was the dollar, though, that remained the main channel of traders’ optimism. Having reached an 8-1/2 year high against a basket of major currencies, it was trading around 120.44 yen and 1.2188 to the euro.
With economists pencilling in a slightly earlier date for the first post-financial crisis rise in US interest rates, the two-year US Treasury (government bond) yield also rose to a high not seen in almost four years.
“As is to be expected at this time of year trading volumes have really plummeted, but pretty much what we see is the stronger dollar trend continuing,” said Alvin Tan, an FX Strategist at Societe Generale.
Focus also remained on oil as it hovered just above $ 61 a barrel following an almost 50% fall over the last six months.
It was also on Russia after Standard and Poor’s warned it could downgrade the country’s credit rating to ‘junk’ early next year, and as Moscow kept up the confrontational rhetoric with the West and NATO over Ukraine.
The Russian rouble plunged to an all-time low in mid-December on the back of lower oil prices and Western sanctions, which make it almost impossible for Russian firms to borrow on open markets.
It has since regained some ground, shored up by informal capital control measures, but was a shade lower at 54.6 to the dollar after a morning spent in and out of positive territory.
“The creditwatch placement stems from what we view as a rapid deterioration of Russia’s monetary flexibility and the impact of the weakening economy on its financial system,” S&P said following its downgrade warning.
With markets in Germany and Italy already shut for Christmas, the FTSEurofirst 300 index of top European shares inched up 0.1% to 1,375.46 points as it looked to extend its rally into a seventh straight day.
Asia’s overnight gains had been led by Tokyo’s Nikkei as it rose 1.2%, while MSCI’s broadest index of Asia-Pacific shares ex-Japan gained 0.2%.
Shanghai had bucked the trend, dropping 2.6% as investors locked in some of their potential 40% profits this year on 2014’s top performing major market.
In comparison, world stocks overall are up a more modest 3%. That’s despite a near 13% jump in benchmark US markets such as the S&P 500, and mainly down to plunges in oil-linked markets such as Russia, and as sentiment has soured again in parts of the euro zone.
German government bonds, traditionally seen as ultra-safe but unglamorous in Europe, have returned 16%, more than triple the region’s best performing stock market, Spain, at just over 5%.
Commodities have been the other major headache. Not only has oil halved in price but growth-sensitive copper and gold are also down for the year.