By Joyce Yu
Philadelphia, PA–The Wall Street extended its rally as worries over Catalan independence eased and better economic outlook bolstered investment sentiment.
Airlines outperformed the market on Tuesday with American Airlines and United Continental rising 4.8% and 4.7% respectively. Both airlines upgraded their outlooks while Delta Air Lines will report earnings today. Airlines while have been benefited from low fuel prices, are facing intense domestic competitions.
The Dow Jones industrial average added 0.3% on Tuesday, reaching a new all-time high. The S&P 500 gained 0.2% and the Nasdaq increased 0.1%. US stocks traded sideways on Wednesday morning.
On Tuesday, the International Monetary Fund upgraded its global economic growth forecast for 2017 by 0.1 percentage point to 3.6 percent, and to 3.7 percent for 2018, from its April and July outlook, driven by a pickup in trade, investment, and consumer confidence.
The IMF noted risks are shifting from banks, which have stronger balance sheets now, to financial markets as credit spreads compress, volatility declines and asset prices rise.
“While increased risk appetite and search for yield are a welcome and intended consequence of unconventional monetary policy measures…there are risks if these trends extend too far,” the IMF said in its biannual global financial stability update. The IMF also urged national regulators to consider plans that would substantially ease capital, liquidity or prudential standards in “light of their potential to damage the agenda of global regulatory harmonization.”
Too quick an adjustment in monetary policies could cause unwanted turbulence in financial markets and set back progress toward inflation targets,” the IMF said in its report. “The key challenge confronting policymakers is to ensure that the buildup of financial vulnerabilities is contained while monetary policy remains supportive of the global recovery,” the orgnization warned.
“A risk-on mood has set in and money is flowing out of bond funds into equities funds,” said Hugh Dive, chief investment officer at Atlas Funds Management.
“One of the biggest drivers of global equities is the United States, and some of the macro data coming out from there has been quite positive. There is also this view that China is traveling much better than many people had expected,” he shared with the Reuters.
Over in Europe, worries over Catalan independence eased as Catalan leader Carles Puigdemont decided to put an independence declaration on hold and instead pursue dialogue with the central government in Madrid. Spain’s benchmark stock index gained 1.5% on Wednesday and the euro was trading higher.
“Ultimately it’s very, very difficult for actual independence to happen. Yes, there’ll be near-term headlines. We don’t see this ultimately as something really derailing either the Spanish story or the euro-zone story,” Andrew Sheets, chief cross-asset strategist at Morgan Stanley, said on Bloomberg TV.
