Thursday, 16 January 2014

S&P 500 back at record high as World Bank raises global growth forecast

US stocks are finally showing a gain for 2014. The S&P 500 rose 0.5 percent on Wednesday to hit a new all-time high.

The gain in stocks came as the Federal Reserve's latest Beige Book reported “moderate” growth last month and a “positive” economic outlook in most Fed districts.

The good news on Wednesday was not restricted to the US economy. The World Bank raised its global growth forecast for 2014 to 3.2 percent from 3.0 percent in June. While the US growth forecast was unchanged at 2.8 percent, the euro area is now forecast to grow 1.1 percent this year compared to the previous forecast of 0.9 percent.

Investors also showed greater optimism on the eurozone economy on Wednesday. European stocks rose, with the STOXX Europe 600 rising 1.0 percent to hit its highest level since January 2008.

Eurozone government bonds also rose on Wednesday. Spain's 10-year yield fell five basis points to 3.77 percent. Portugal's 10-year yield fell 13 basis points to 5.16 percent, the lowest since August 2010, while the government sold one-year bills at an average yield of 0.869 percent, the lowest since November 2009.

Meanwhile, interest rates also fell in China on Wednesday, with one-year interest-rate swaps falling 14 basis points, the most in more than a week, to 4.92 percent.

The decline came after the People's Bank of China reported slower credit growth in December. New local currency loans came in at 482.5 billion yuan, down from the previous month's 624.6 billion yuan. M2 money supply rose 13.6 percent last month from a year earlier, down from a 14.2 percent rise in November. Total social financing aggregate was 1.23 trillion yuan, unchanged from the previous month.

However, Brazil's central bank remains in tightening mode. On Wednesday, its monetary policy committee voted unanimously to raise the Selic rate by 50 basis points to 10.50 percent, the highest in two years.

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