U.S. healthy economic growth revives stocks

Stock and oil prices moved upwards following preliminary economic data showing that the U.S. economy grew considerably more than expected and taking analysts by surprise. The EUR/USD also ended its impressive rally and erased a lot of its initial gains.

The release of preliminary annualised data on Thursday by the U.S. Bureau of Economic Analysis revealed that the economy grew by 3.7% within the second quarter of 2015, which is an outstanding rate if compared with the first quarter’s growth of 2.3%. The result took everyone by surprise as analysts were expecting a growth rate of only 3.2% and provided evidence that the world’s largest economy is on a solid recovery mode despite global economic uncertainty. The revised preliminary data reflected a larger size of financial investments than initially forecasted, and also higher inventories than previously estimated by the Department of Commerce. The overall 3.7% growth is mainly a result of consumers’ appetite to buy goods and services, strong government spending, and also high exports.

The upwards revision of the Q2 2015 growth data was undoubtedly good news for U.S. stock market bulls, who endured a horrific period only seven days ago when U.S. stock indices plunged on worries that the global economy is slowing hand-in-hand with the Chinese economy. Dow Jones stock index reacted immediately to the encouraging U.S. growth data as it moved upwards on Thursday by 2.2%, while on Monday and Tuesday it slipped by an enormous 5.2%. On a weekly basis, the Dow Jones Index had gains of 1.9%. The NASDAQ 100 and S&P 500 also moved with gains on Thursday by 2.5% and 2.4% respectively. The EUR/USD moved with losses on Thursday by 0.8% as traders restored demand for the U.S. dollar due to the increase of the possibility that the Federal Reserve might move with an interest rate increase before the end of the year.

The strong preliminary U.S. growth data also provided a boost to the price of oil. Demand for the ‘black gold’ was recently at very low levels due to concerns of over-supply to the markets, as well as the lift of Iran sanctions implying that the nation is able to resume with its crude oil exports to other nations. But now that there is evidence of a growing U.S. economy, there is also parallel hope of increasing demand for crude oil by the world’s largest oil consuming nation. Crude oil prices increased on Thursday by a massive 8.4%. Prior to the increase, the price was at a six-year low and so despite the large gains the rate at the end of last week still remains well under the $50-per-barrel level at $45.23.

Coming up this week is the release of the Nonfarm Payrolls (NFP) data, due on Friday 04 September at 12:30 GMT. Last week’s strong growth data implies that an interest rate increase within the year still remains a possibility. But due to the fact that it has been repeatedly communicated by the Fed that employment data plays a major role in its decision to initiate a gradual interest rate increase, could the upcoming NFP data trigger the Fed’s decision to act?