After China’s surprise currency devaluation on Tuesday, markets are focusing on the prospect of more global central bank monetary easing and a pushback on U.S. rate hike chances, allowing for stabilized global asset prices and economic growth potential.
The Euro currency fell as much as 2% versus the USD to close at 1.1314 Wednesday after a European Central Bank (ECB) member said that monetary policy was pointing in the direction of expansion through the asset- buying mechanism since the outlook for inflation has worsened. Slowing global growth prospects and deteriorating commodity prices are major factors in the increasing downside risk of achieving a sustainable 2% inflation target. The possibility of continued quantitative easing in Europe has returned to investors’ attention, reining in this week’s rally in the Euro. The Frankfurt based ECB is currently buying $69 billion a month of public sector debt, covered debt, and asset-backed securities under QE (Quantitative Easing) which should continue until September 2016. The Euro surged to seven month highs against the USD on Monday as the global rout, triggered by China’s surprise currency devaluation, reduced the chances the Federal Reserve will increase its benchmark rate next month. China’s central bank cut lending rates Tuesday, and policy makers in other countries are set to follow.
Dow Jones
The Dow rocketed 619 points on Wednesday snapping up a six day losing streak and posting its biggest one day gain in seven years. It was up 4% for the day to 16,285.51, the third biggest point gain of all time. Economic and capital market concerns remain, given China’s slowdown which triggered the global stock market rout over the past week. Leading into Wednesday the Dow, S&P500 & Nasdaq, had dropped six days in a row, the longest slide in three years. The Dow fell 1,900 points during that period wiping out more than $2 trillion in corporate value. The Dow remains down 8.6% for the year despite the gains yesterday. The gains can be partially attributed to bargain hunting however another factor was believed to be the comment from the head of the New York Federal Reserve Bank, who said because of the slowdown in China and other markets, the case to raise interest rates in the U.S. for the first time in nearly a decade is “less compelling” than it was a few weeks ago. Investors have been concerned that economy could falter if the Fed raises rates too soon.
Google (NASDAQ:GOOGL)
Google stock gained 8% to $628.62 yesterday, the fifth biggest gainer in the S&P 500 and second in the Nasdaq. On the Nasdaq, gainers outnumbered decliners by an almost three to one margin during heavy trading. Google shares had declined nearly 12% over the past week amidst the global economic uncertainty that trimmed most industries, and continued speculation regarding an interest rate hike in the U.S. by the Federal Reserve. The company’s shares also got a boost yesterday after the internet search engine got a price target and rating upgrade from investment bank Goldman Sachs (NYSE:GS), which sited major money making potential for both Google’s mobile search efforts and its YouTube video wing. Goldman raised its price target on the shares from $660 to $800 and to a Buy from Neutral. The investment bank also put Google on its Conviction (buy) List.
On August 10th, Google announced a corporate restructuring that would break up the search leader’s wide ranging operations into smaller, more focused pieces under a new parent firm, Alphabet.
