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Markets rally amid hope for global economy and interest rates peaking

The FTSE 100 closed in the green on Friday after being boosted by US jobs data (Tim Goode/PA) (PA Archive)
The FTSE 100 closed in the green on Friday after being boosted by US jobs data (Tim Goode/PA) (PA Archive)

HOPES that the global economy could shrug off long standing sluggishness and move into growth increased today with some decent economic statistics from China.

In the UK, the stock market ended a strong week on a high and economists bet that interest rates are peaking and inflation is tamed.

China’s financial lethargy has been seen as a drain on global confidence since it is the world’s second biggest economy.

Overnight, it reported that factory output and retail sales grew faster than expected in August.

The National Bureau of Statistics said industrial output rose 4.5% year-on-year, much stronger than the expected 3.9% rise.

Retail sales are also up -- 4.6% in August. And unemployment fell.

The FTSE 100 rose another 38 points to 7711. It is up nearly 250 points this week and buyers are back in the market suggesting it could pass 8000 in a few weeks.

In New York, the flotation of Arm got off to a flyer, giving cause for optimism that the moribund market for new flotations could soon see an injection of life.

On its first trading day, Arm shares rose 25% leaving it valued at $65 billion.

The FTSE had its best week in 10 months.

Neil Wilson at markets.com said: “We’re seeing big bids for equities again today, building on strong gains in yesterday’s session after the European Central Bank signalled its hiking cycle is over, whilst stronger-than-expected Chinese data overnight has helped secure the upbeat mood.”

Next week the Bank of England is expected to put rates up by a quarter point to 5.5%, but there is growing talk that it may hold off, or at least signal that this is the last rate rise for a while. Inflation is down from 11.1% to below 7%.

In the City, bankers say that clients who have been too nervous to do deals are now just waiting for some certainty on rates and inflation before they float, or launch takeover bids.

Martin Beck, Chief Economic Advisor to the EY ITEM Club, says: “Having already raised interest rates 14 times since late 2021, the Monetary Policy Committee (MPC) had, until recently, seemed destined to go for number 15 in this month’s meeting. But recent economic data means that decision looks much more finely balanced than only a few weeks ago.”

Last month official figures showed the UK government finances are in better shape than feared, with lower borrowing and higher tax returns. Chancellor Jeremy Hunt still ruled out pre-election tax cuts, but he and his party could see at least a mini-economy boom in the run up to that election.