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• G20 blueprint for economic recovery pushes up shares
• Analysts see signs of end to UK recession
Optimism returned to the global financial markets today with share prices soaring on both sides of the Atlantic as the G20 meeting produced what investors hope will be a blueprint for economic recovery.
Coupled with the first signs of a recovery in the British housing market and data suggesting the state of America's ailing car industry has bottomed out, the result of the meeting in London pushed the FTSE 100 index of leading shares up more than 4%, over the psychologically important 4,000 level for the first time in six weeks. In New York the Dow Jones sported gains of more than 300 points in late trading taking it back above the 8000 mark for the first time since mid-February.
The assertion of the G20 leaders that their plan to pump an additional $1tn into the global economy should mean that growth will be more than the 2% predicted by the International Monetary Fund for next year sent commodity prices soaring. It is hoped that a recovering global economy will boost demand for raw materials. The crude oil price also rose, jumping more than 7% to over $52 a barrel.
"It does look as if – very, very slowly – that the world economy is stabilising," said Kevin Gardiner, head of global equity strategy at HSBC Investment Bank.
Investors rushed to pull their money out of so-called safe havens, where they have been hoarding their reserves against the risk of a further deterioration. The gold price dropped more than $25 to $893 an ounce, further depressed by news that the IMF will sell some of its reserves of the precious metal in order to provide billions of dollars to aid the world's poorest economies. Government bonds, another safe haven for investors, also saw prices plunge.
In London investors returned to the banking and financial sector, where companies have seen billions wiped off their valuations by a series of corporate collapses and multibillion pound write-downs. At the close of play in the square mile, Royal Bank of Scotland was up more than 12% at 28.2p. The stock, however, is still well below the price of 65.5p at which the government took its majority stake in last year's bailout.
Banking stocks were further helped by news that the way they account for their assets is being changed. That could spell an end to the huge writedowns banks have been forced to take as a result of having to price their investments at volatile short-term prices. "The banks are having a party after the G20 protests," said spread betting firm BetonMarkets.com.
Across the British economy, analysts heralded the first signs of recovery on news that UK house prices recorded their first increase in March after 16 months of declines and fresh data showing that while the country's construction industry has continued to shrink, the pace of contraction is slowing.
The Bank of England, meanwhile, said British lenders plan to make credit more easily available to households and businesses over the next few months, adding that the economic outlook is "no longer expected to be a factor bearing down on credit availability".
Getting banks to lend to businesses is seen as crucial in order to get the economy moving again. Colin Ellis, a Daiwa economist, said the survey "could mark a turning point for the UK economy".
"This positive news chimes with other glimmers of economic hope that have cropped up, heightening expectations that maybe the UK is indeed now past the worst of the recession. Time will tell, but we increasingly think so," he added.
Mining stocks rose as commodity prices picked up on hopes that demand will start to improve. The copper price, for instance, surged to a five-month high. On the other side of the Atlantic, US car sales fell by 37% in March, a smaller than expected drop, that sparked hopes that the world's largest car market could be near the bottom.
"There's a desperation to grab on to any good news," said Manus Cranny at MF Global Spreads. "House prices rising, Americans buying cars, steel manufacturers [ArcelorMittal] obtaining refinancing, world leaders smiling and the French turning up on time at ExCel in London for the G20 is enough for one day to cheer the London and European markets and help them power ahead."
David Buik, at BGC Partners, sounded a note of caution: "As is often the case, the market is likely to overdo it".
"However," he added, "there are signs of a greater appetite for risk. Also, it is fair to say the stockmarket fell much more quickly in 2008 than the economy did. Companies are now leaner and meaner so there may be some value out there."
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