Thursday’s advances in New York and Europe were extended to Asian markets as a forecast-busting US retail sales report revealed that American consumers remain upbeat despite high inflation and the possibility of further interest rate hikes.
Since traders have been monitoring US statistics for months, it is generally agreed that while a strong number is healthy for the economy, it is negative for equities since it puts more pressure on the Federal Reserve to continue tightening monetary policy.
In light of this, a significant half-million increase in new jobs last month sparked a sell-off globally and prompted central bank officials to warn that rate hikes would need to be bigger than anticipated and last longer.
The perception was confirmed this week by news of a smaller-than-anticipated decline in January inflation, which further dampened investor sentiment.
The greatest increase in retail sales since March 2021 on Wednesday, according to analysts, may have caused some people to reconsider the adage that “good news is bad news” and that the economy may be able to avoid a “hard landing” or recession.
Quincy Krosby, of LPL Financial, told Bloomberg Television that the gains were “telling us maybe we can keep going as long as inflation is coming down overall and growth is solid”.
“Healthy retail sales results have been underpinned by a strong labor market… and as reported by the New York Consumer survey earlier this week, the US consumer is not concerned about losing their job,” continued Rodrigo Catril of National Australia Bank.
“The main takeaway is that the US consumer remains in rude health and with inflation still too high for comfort, the Fed has no alternative but to keep lifting the funds rate.”
Wall Street’s three major indexes initially declined in response to the most recent data before recovering to close the day higher. European markets also increased, with London benefiting from a greater-than-anticipated decline in inflation.
Asia took over the reins after a difficult week thus far.