World stock markets roared ahead this week as two of Wall Street’s largest banks put the worst of the financial crisis behind them and delighted investors with surging profits.
From Hong Kong to New York, shares in the world’s biggest companies rode a wave of optimism after Goldman Sachs and JPMorgan reported strong growth in second-quarter earnings and China announced resurgent economic output. The bullish mood swept across Europe and the FTSE 100 index enjoyed its biggest weekly gain of 2009.
The gains came as Angela Merkel, the German chancellor, on Friday slammed the excesses of financial centres in New York and London and pledged to push for tougher financial regulation at the next summit of the Group of 20 nations in Pittsburgh.
“People rightly expect that a crisis like this will never happen again,” she said in a speech in Nuremberg. “Therefore . . . we must go to the G20 and say that we won’t allow Wall Street and the City of London to again dictate how money should be made only for others to pick up the bill at the end.”
Although disappointing results on Friday from Citigroup and Bank of America damped sentiment in New York and contributed to lingering fears about the future of those banks, the figures failed to sap confidence in other financial centres.
Instead, evidence this week of resurgent growth in China’s economy, one of the world’s biggest consumers of oil and industrial metals, raised investors’ hopes that the global economy could be at a turning point. In Europe, the UK’s FTSE 100 index and pan-European FTSE Eurofirst 300 extended their winning streaks to five straight days and recorded their biggest weekly gains since the start of the year.
The FTSE 100 rose 6.3 per cent and the Eurofirst 300 jumped 7 per cent.
Jack Ablin at Harris Private Bank said: “The earnings this week blew the doors off some terrible expectations. While revenues were lacklustre, that would be consistent with an economy that is bottoming.”
In Asia, India’s Sensex index was the star performer, rising 9.2 per cent over the week, while Hong Kong’s Hang Seng index jumped 6.4 per cent. The Nikkei 225 gained just 1.2 per cent however. The S&P 500 in New York was strongly up over the week.
The Wall Street euphoria contrasted with the reality of recession in the US, where unemployment stands at 9.5 per cent.
“The markets have been driven higher by better-than-expected US earnings. These results send a message that the corporate sector may have seen the worst of the recession. If next week’s results are as good, we will see more gains,” he said.
Citi and BoA, which have been repeatedly bailed out by US taxpayers, recorded profits in the three months to June. But this was only because of one-off profits from disposals and other accounting gains. Their underlying businesses remained under pressure, as their investment banks underperformed rivals such as Goldman and JPMorgan and their huge consumer businesses suffered from the recession.