Ritika Janiya
Global stocks surged as retail sales in America beat all expectations. Fears over a recession continue to wane and despite very high rates of interest, American consumers refuse to be cowed and continued to spend, thus bailing out the economy. This triggered the stock markets to rebound sharply, with Wall Street and FTSE 100 both climbing high.
In a surprising twist, stock markets surged worldwide on the back of recent data showing that the US economy is much stronger than what many had assumed. This was followed by news that US retail sales for July increased by 1% to $709.7 billion—amazingly high, much stronger than economists had forecast. It also removed some fears that the surge in borrowing might be enough to send the country into a recession, despite the fact interest rates are at their highest point in over two decades.
Wall Street’s Big Win
The news sent US stock markets considerably higher. Wall Street indexes, which reflect the fortunes of the largest companies listed in the country, rose as much as 2.1 percent. This is big because it shows that investors are more hopeful about the economy’s future. As consumers consistently spend money, that helps businesses grow, which boosts the stock market.
One of the best performers in the headline index was Nike, whose shares soared after a famous hedge fund billionaire decided to invest in the company. A further, although slightly surprising, shot in the arm was due to positive news coming from Wall Street.
FTSE 100 Follows Suit
Over in the UK, the other major index of leading companies, the FTSE 100, had a barnstormer. It closed up 0.8%, same direction as everyone else, and buoyed by the same optimism after those very strong US retail sales. Great news for investors who had been plagued by the specter of slowing global growth.
Why Retail Sales Count
Retail sales offer a strong indicator of the health of the economy. If people are out spending, they are confident about their jobs and financial situations. Essentially that translates into support for businesses and eventually into the creation of more jobs and therefore economic growth. The large increase was a positive surprise for U.S. retail sales, hinting that consumers are so far undeterred by high-interest rates.
Interest Rates and Market Reactions
Strong data on retail sales affected the situation in bond markets. Yields on bonds, returns investors get on government bonds, went higher as traders unwound expectations for future interest rate cuts. In early hours, there was a hope the Federal Reserve, which is the US central bank, would announce a large cut to official interest rates at the next scheduled meeting, which is in September. But the robust retail sales numbers have mitigated that wish away.
Additionally, the probability of the Bank of England cutting interest rates at its next meeting in November is reduced. One day before the retail sales data was released, money markets showed it was pricing in a 41 percent chance of a rate cut. That probability then fell to 34 percent after the strong sales data.
Rough Week Can’t Hold Back Stocks
Global stocks: the relief rally after a bruising week at the markets. Just a week ago, billions were wiped off from global markets around the world because of fears that the US economy was heading into recession. Investors were worried that high-interest rates would slow the economy too much, leading to a downturn. But strong retail sales data will be a shot in the arm for confidence.
Joining the positive buzz, separate data showed that the number of Americans filing applications for unemployment benefits fell for a second straight week, pointing to a still-healthy jobs market—a further positive indicator of the economy. When people have jobs, they have money to spend, and that keeps the economy ticking along.
What Experts Are Saying
The financial experts and economists are now feeling bullish. Consultancy firm Capital Economics said in a message to clients that its risky to “bet against the American consumer.” That is in reflection of the resilience of US shoppers down to higher-interest rates.
Looking Ahead
The new figures are good and inspiring, but it must also be made clear that the economy remains on shaky footing. Interest rates are still sky-rocking, while the threat of inflation is ever-present in the form of ever-increasing prices of goods. So long as consumers continue to spend money, there is a bright hope of the economy growing.
Stated differently, the strong data around retail sales has gone some way to further shoring up global stock markets—the one area in which a recession was not yet being priced into US economic expectations, underpinned as it is by the resilient consumer. Investors and experts alike hope that it will continue to pay off and help fortify the global economy.
