US data eases period of turmoil in stock markets

Strong US factory output growth and the intervention of a senior American central bank official brought some relief to markets yesterday, a day after about $672 billion was wiped off global shares.

On another day of wild swings in stock prices, James Bullard, hawkish president of the St Louis federal reserve, said the US central bank should consider maintaining its policy of pumping funds into the economy as inflation expectations eased.

Mr Bullard, an influential member of the central bank’s decision-making committee, made his remarks as investors sought havens in German and US bonds, sending the Dow down more than 200 points in early trading. The intervention and US data showing a monthly 0.5 per cent rise in industrial production triggered a rally that left most stock markets only slightly down on the day.

Global shares have been hit hard by mounting concerns about the prospects for economic growth, Ebola and geopolitical tensions.

Quantitative easing

The Federal Reserve was expected to end its purchases of bonds under its programme of quantitative easing within a few months as a prelude to a first increase in interest rates. While the economy remains robust, a lack of wage rises has undermined demand on the high street and pushed down prices.

Mr Bullard said that to keep consumers spending the Fed should consider maintaining cheap credit.

European equities trimmed their losses late yesterday after hitting a 13-month low, but the Iseq, FTSE, CAC and Stoxx still ended the day down.

Davy equity analyst Geoff McEvoy described it as a “rollercoaster day . . . like being back in 2010”.“There is fear Europe is not picking up,” he said, adding: “Any stock that ended the day flat was doing well.”

European officials yesterday tried to steady nerves, vowing to help the Greek government to keep financing itself, while the European Central Bank offered more cheap credit for the country's banks.

Merrion Stockbrokers economist Alan McQuaid said markets have been very resilient this year considering the geopolitical tensions.

ECB meeting

He said market uncertainty can be traced back to the recent ECB meeting where a doveish

Mario Draghi

put doubts in people’s minds about quantitative easing. The ECB president stopped short of spelling out for how long the ECB might buy assets to head off deflation, with sentiment souring since then.

Mr McQuaid said German data is getting weaker and weaker, adding “Germany is in denial and won’t do anything to stimulate its economy”.

Germany, the euro zone’s biggest economy, has reported a fall in exports and cut growth forecasts. This has prompted some fears the currency area could slip back into recession.

European banking stocks plunged to the lowest in more than a year yesterday on concerns the region is headed for its third recession since the financial crisis erupted in 2008.

Oil slid for a fourth day yesterday, falling to a four-year low under $83 a barrel.

Investec said the euro area is no longer on the verge of implosion which prompted market retracements in May 2010 and mid-2012. “If this were the case Spanish and Italian sovereign yields would be closer to 7 per cent than 2 per cent,” it said. – Additional reporting: Guardian/Bloomberg