Markets rally on China recovery

Government steps in to shore-up prices.

Global equities lost €7tn in two weeks.

A relief rally is spreading around the globe, with Chinese shares snapping a five-day losing streak.

The dollar strengthened and oil jumped the most in four months after the US economy grew more than forecast in the second quarter.

Shares surged from Asia to the US after the biggest advance in the Standard & Poor’s 500 Index in four years yesterday helped restore some appetite for riskier assets.

Chinese stocks posted their steepest gains in seven weeks after a surge in the last hour of trading in Shanghai. Sources said the government stepped in to shore up prices.

The rally in US stocks halted the selloff that’s engulfed global markets since China devalued its currency on August 11, stoking concern the slowdown in the world’s second-largest economy threatened global growth.

Data yesterday, showing a pick-up in the US economy bolstered confidence in the outlook, following the rout that erased €7.1tn from the value of global equities in two weeks.

“We got our pullback, and now we’re going to focus on US things like GDP and the Fed,” said John Canally, chief economic strategist at LPL Financial Corp in Boston.

“When you’re in a correction, it’s not fun, but when you’re out, you can re-focus on what matters,” he said.

The S&P 500 advanced 1.9% after the gauge jumped 3.9% yesterday.

The gauge is heading toward its best two-day performance since 2009. The Stoxx Europe 600 Index climbed 3.7%.

A gauge of commodities rebounded from a 16-year low.

The Bloomberg Dollar Spot Index rose 0.2% and the yield on 10-Year Treasuries increased 1 basis point to 2.19%.

Volatility eased after gauges reached their highest levels since 2011 this week.

Europe’s VStoxx Index fell 15% on Thursday, while the US VIX has dropped 38% in three days, the most since 2010.

“There is a bounce from the oversold level,” said Veronika Pechlaner, an investment manager at Ashburton Ltd in Jersey, the Channel Islands.

“We believe the structural growth potential for China will gradually decline, but it doesn’t have to be a shock,”she said.

The MSCI Emerging Markets Index advanced 3.3%, the most in almost three years, as valuations near the lowest level since March 2014 spurred appetite for riskier assets.

The ruble jumped 4%, leading gains as a gauge of 20 currencies rebounded from a record low.

The Shanghai Composite Index fell up to 0.7% in the afternoon session before surging in late trading to close 5.3% higher.

Hong Kong’s Hang Seng China Enterprises Index advanced 4.6%.

China’s government intervened to boost the stock market yesterday, before a September 3 military parade celebrating the 70th anniversary of the victory over Japan during World War II, according to sources.

Shanghai’s gauge, which dropped 43% from a June high to Wednesday, hasn’t spent an entire trading day in positive territory since August 10, the day before China devalued its currency.

The correlation of China’s benchmark index with both S&P 500 futures and the yen climbed to the highest levels on record.


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