China and US lift global economy

By Ed Crooks in New York, Jamil Anderlini in Beijing and Ralph Atkins in London

China’s accelerating economy, upbeat statements from US industrial groups and Google’s new share price high raised hopes of strengthening global growth despite the fallout of this month’s political showdown in Washington.

The confrontation between Republicans and the Obama administration, which led to a two-week government shutdown before a last-minute deal on Wednesday, cost the US $24bn, according to estimates by Standard & Poor’s, the rating agency. However, evidence from around the world on Friday indicated more positive trends.

China’s economy expanded 7.8 per cent in the third quarter from the same period a year earlier, up from 7.5 per cent in the previous three months, cheering investors and exporters worldwide. 

General Electric, the largest US manufacturer by market capitalisation, on Friday reported a 19 per cent rise in orders, with strong growth in most developed and emerging economies, including a large sale of power generation equipment to Algeria.

Earnings reports, including a stronger than expected swing into profit for Morgan Stanley, helped the S&P 500 index rise to a fresh all-time high. At the close in New York on Friday it was up 2.4 per cent on the week. The FTSE all-world index was up 2.4 per cent compared to the previous Friday’s close.

The standout performer was Google, whose shares climbed 13 per cent on Friday to top $1,000 for the first time, after its results on Thursday.

Global stock markets had remained relatively stable during the US crisis, and this week’s rally reflected expectations that the blow to US growth prospects would delay Federal Reserve plans to scale back, or “taper”, its quantitative easing.

Iain Stealey, senior bond portfolio manager at JPMorgan Asset Management, said: “Markets love QE and this is going to make QE last longer.”

Jeff Bornstein, GE’s chief financial officer, said the company was benefiting from the growing need for infrastructure worldwide, and highlighted the Middle East, Africa and Russia as particular areas of strength.

There were even signs of “a little bit of an improvement” and a pick-up in orders in Europe, he added. GE’s businesses serving US consumers, such as appliances, also reported strong results.

Honeywell, another large manufacturer, was hit by a fall in US military spending, but also reported “improving end markets”, including commercial aerospace and in particular the automotive industry.

Companies including Stanley Black & Decker, the US tool group, have warned of an impact to earnings from the government shutdown and fears over possible US default.

However, GE said it had not seen any material impact from the US political turbulence in the third quarter, and did not expect any large impact in the fourth quarter.

Hinting at a revival in global investor confidence, inflows into European equity funds were this week the highest since July 2011, according to EPFR, the fund data provider. 

Copyright The Financial Times Limited 2013.