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Investors shrug off US GDP miss as corporate earnings spur stocks higher

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A trader works on the floor of the New York Stock Exchange. Photo: Shannon Stapleton/Reuters
A trader works on the floor of the New York Stock Exchange. Photo: Shannon Stapleton/Reuters

European and US markets were up on Thursday in London, in spite of the most recent US GDP reading missing expectations. 

GDP rose at a 6.5% annualised pace in Q2, according to the Commerce Department’s first estimate. Analysts estimated this would hit 8.4%.

The FTSE 100 (^FTSE) was 0.9% higher by the closing bell in London. Germany's DAX (^GDAXI) was around 0.4% higher, and the CAC (^FCHI) headed 0.5% upwards. 

“Consumer spending has driven another quarter of impressive growth in the US, but we are certainly not seeing the gangbuster results that the Fed and president Biden were hoping for," said Robert Alster, CIO at wealth manager Close Brothers Asset Management. 

"The grand economic and societal reopening and a healthy vaccination programme have gone some way to drive recovery, but all eyes are on Q3 to see if growth can creep closer to the 8%+ market expectation."

A Federal Reserve meeting also hinted at the possibility of winding back stimulus. Chairman Jerome Powell doubled down on his belief that a surge in inflation was caused by a strong recovery following reopening, while holding rates near zero. 

"Investors should understand that the Fed's massive stimulus of $120bn [£86bn] in monthly bond purchases and strong earnings reported by corporations has fuelled the strength of economic recovery," said Naeem Aslam, chief market analyst at AvaTrade. "This has boosted investor optimism and confidence in the equity markets."

US indices opened in the green. The S&P 500 (^GSPC) was up 0.6%. The Dow (^DJI) also gained 0.6% and the Nasdaq (^IXIC) was 0.3% higher. 

Federal Reserve chair Jerome Powell warned on inflation but kept policy much the same as it has been. Photo: Jose Luis Magana/AP
Federal Reserve chair Jerome Powell warned on inflation but kept policy much the same as it has been. Photo: Jose Luis Magana/AP

"Investors should keep in mind that, according to Fed officials, the US economy still has some ground to cover before the central bank considers the inevitable tapering of bond purchases," said Aslam.

It's another busy day for earnings in Europe, with Lloyds Bank (LLOY.L) having already reported. Oil heavyweight Shell (RDSA.L) also announced a $2bn buyback alongside its results, sending stock up around 3.1% in early trade. 

Read more: From Airbus to VW: First-half results to watch today

Other companies on the slate include Diageo (DGE.L), AstraZeneca (AZN.L) and Dr Martens (DOCS.L).

Overnight in Asia, the Hang Seng (^HSI) reversed some of its earlier losses to finish 2.7% higher. The SSE Composite (000001.SS) also headed 1.7% higher and the Nikkei (^N225) ticked up 0.7%. 

Following panic in equity markets in recent days due to a crackdown on both the education and tech sectors in China, things look to be returning to slightly more normal levels. 

Officials have tried to reassure investors by publishing articles in support of the state's position via the media, as well as using government-linked funds to intervene and halt the drop off. 

Regulators have also approached investment banks to quell investor concerns. 

Watch: What is inflation and why is it important?

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