Global stocks on best run in two years as dollar steadies – Oil hits 2016 high on output freeze hope
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NEW YORK, March 18, (Agencies): World equity markets were poised for a fifth week of gains on Friday, their best run in more than two years, as a 2016 high for oil, the dollar’s recent decline and a more optimistic view of the economy combined to boost investor confidence.
Stocks in Europe gained and Wall Street rose for a third day as the dollar steadied after a third week of declines that took it to its lowest against other major currencies since October.
The dollar had weakened earlier in the week after the US Federal Reserve scaled back its forecasts for rate increases. On Friday, the European Central Bank’s chief economist, Peter Praet, indicated the ECB could further loosen monetary policy.
A rising dollar in 2015 weighed on the global economy while its recent decline has helped push up oil prices and put an end to market concerns over a soaring dollar and weak oil prices, said David Kelly, chief market strategist at JPMorgan Asset Management in New York.
MSCI’s all-country world index, a gauge of equity performance in 46 countries, rose 0.21 percent. The index is set for its best five-week rally since early 2014.
The pan-European FTSEurofirst 300 index of leading regional shares rose 0.24 percent.
On Wall Street, the Dow Jones industrial average rose 86.43 points, or 0.49 percent, to 17,567.92. The S&P 500 added 6.28 points, or 0.31 percent, to 2,046.87 and the Nasdaq Composite gained 6.42 points, or 0.13 percent, to 4,781.40.
Oil rose above $42 a barrel, hitting its highest this year and extending a rally into a fourth week, on expectations of a production freeze by major exporters, stronger seasonal demand and dollar weakness.
Brent crude’s front-month contract was up 64 cents, or 1.5 percent, at $42.18 a barrel after touching a 2016 high of $42.54.
US crude gained 52 cents to $40.72 a barrel. Oil prices have surged by more than 50 percent from 12-year lows hit in December after the Organization of the Petroleum Exporting Countries (OPEC) toyed with a production freeze that lifted Brent from about $27. The dollar index recovered from a five-month low but was still on track for a third straight week of losses, as investors cut favorable bets after the Fed appeared cautious about raising interest rates at a steady pace this year.
The dollar was mostly flat against the yen, having hit a 17-month low on Thursday, with traders worried that a sharp rise in the Japanese currency would elicit intervention from the Bank of Japan.
The dollar traded at 111.36 yen, off a low of 110.67 plumbed on Thursday.
The benchmark US Treasury note rose 9/32 in price to yield 1.8732 percent.
US
The S&P 500 edged into positive territory for 2016 on Friday as gains in healthcare and financial stocks added to a rally spurred by the Fed’s tempered view on interest rates and rising oil prices.
The Dow Jones industrial average extended gains for 2016, helped by a 2.7 percent increase in Goldman Sachs.
Volumes were slightly higher than usual on account of “quadruple witching,” the expiry of options on stocks and indexes as well as futures on indexes and stocks.
Stock volatility has pulled back sharply this week, most notably after the Fed’s meeting. The CBOE Volatility Index , the most widely followed gauge of investor uncertainty, fell 4.8 pct to 13.75 on Friday, its lowest since early November.
Crude oil dipped slightly as traders booked profits after strong seasonal demand and hopes that major producers would reach an agreement to freeze production pushed prices to their highest levels of the year.
At 12:43 pm ET (1643 GMT), the Dow Jones industrial average was up 101.7 points, or 0.58 percent, at 17,583.19, the S&P 500 was up 8 points, or 0.39 percent, at 2,048.59 and the Nasdaq Composite was up 22.61 points, or 0.47 percent, at 4,797.60.
Seven of the 10 major S&P sectors were higher, led by a 1.21 percent rise in the healthcare sector.
UnitedHealth was up 1.8 percent at $126.73, giving the biggest boost to the sector. Bank of America and JPMorgan were up about 2.5 percent after they announced share buyback programs, giving the biggest boost to the S&P 500.
Shares of Adobe were up 4.2 percent at $93.70 after the Photoshop maker raised its full-year profit and revenue forecasts above expectations.
Starwood Hotels & Resorts was up 4.7 percent at $80 after receiving what it deemed a superior takeover offer from China’s Anbang Insurance Group and said it planned to end a deal with Marriott. Shares of Marriott were up 2.4 percent at $73.52.
Advancing issues outnumbered decliners on the NYSE by 1,844 to 1,102. On the Nasdaq, 1,887 issues rose and 843 fell.
The S&P 500 index showed 44 new 52-week highs and two new lows, while the Nasdaq recorded 79 new highs and 36 new lows.
Europe
London was Europe’s stand alone, closing 0.2 percent lower. But shares in Frankfurt and Paris both ended trade with convincing gains.
The Fed’s announcement on Wednesday has also provided a boost for emerging market currencies and sent the dollar tumbling, which in turn provided a boost to dollar-priced crude oil, which has surged above $40 per barrel.
“US stocks are ticking higher, along with European equities, despite a disappointing consumer sentiment report, amid the continued rally in crude oil prices and following this week’s Fed decision to cut this year’s rate hike forecasts,” analysts Charles Schwab said in an investors’ note.
The prospect of ultra-low interest rates buoys stock markets because it boosts spending in the world’s biggest economy, dealers said.
“Lowered interest rate expectations have sent global stock markets higher because low interest rates traditionally encourage spending, the rising tide lifting all boats,” said Spreadex analyst Connor Campbell.
Key figures around 1645 GMT
London – FTSE 100: DOWN 0.2 percent at 6,189.64 points (close)
Frankfurt – DAX 30: UP 0.6 percent at 9,950.80 points (close)
Paris – CAC 40: UP 0.4 percent at 4,462.51 points (close)
EURO STOXX 50: UP 0.6 percent at 3,061.22 points
UK
Britain’s top share index steadied at the close on Friday, consolidating a week in which shares have closed in on their 2016 highs, although commodity stocks paused after a strong run.
The FTSE 100 index finished 0.19 percent lower at 6,189.64 points after hitting an intra-day high of 6,237.02, not far from its 2016 high of 6,242.32. The benchmark index managed to rise 0.8 percent this week after slipping in the previous week.
Much of the recent strength in the index has been down to appetite for mining and oil stocks, which rose on Thursday as a weaker dollar made dollar-denominated commodities cheaper for holders of other currencies.
Gains in miners were capped by a dip in copper and gold prices, as well as a downgrade by Credit Suisse.
IG analyst Chris Beauchamp said the sector, up 60 percent from January lows, had done fantastically well but slightly weaker commodity prices on Friday after enjoying a good day put some pressure on the sector.
Banks and other financial stocks were in demand. The British market notably outperformed euro zone banks, with Italian banks volatile again due to uncertainty over mergers in the sector.
Analysts said British-listed banks were more insulated from negative interest rates in the euro zone, which have hit bank profitability. An official said the European Central Bank can cut interest rates again if the euro zone’s economy fails to pick up.
Among individual movers, Berkeley Group fell 2.2 percent after an interim management statement. While it said that it saw results coming in at the top end of expectations, reservations were about 4 percent lower than 2014/15.
Some traders said that after a 10 percent rally in a little over a week leading up to the statement, there were a lack of catalysts to buy the stock, especially given changes to stamp duty that are coming into force next month.
Asia
Asian markets extended their gains Friday on the lingering effects of the Federal Reserve’s lower interest rate outlook, but Tokyo stocks sank as a surging yen crippled Japan’s exporters.
Hong Kong ended up 0.8 percent, Shanghai closed 1.7 percent higher and Sydney gained 0.3 percent by the end. Seoul, Singapore, Taipei and Manila also enjoyed healthy advances.
However Tokyo finished 1.3 percent lower as the yen pushed towards levels not seen since late 2014 with the prospect of low US returns and dim global growth making the safe-haven Japanese unit more attractive.
The dollar fell to 110.82 yen at one point in Tokyo Friday before recovering to 111.30 yen. But that is well off the 113.71 yen in before the Fed’s announcement Wednesday.
The strength of the yen has rattled Japanese central bankers who in January announced a shock decision to take interest rates into negative territory as they struggle to kickstart inflation and economic growth.
The greenback also retreated further against higher-yielding units, with the South Korean won up one percent, Australia’s dollar 0.4 percent higher and the Malaysian ringgit 0.1 percent higher. The Taiwan, New Zealand and Singapore dollars were also up.
Key figures around 0810 GMT
Tokyo – Nikkei 225: DOWN 1.3 percent at 16,724.81 (close)
Shanghai – composite: UP 1.7 percent at 2,955.15 (close)
Hong Kong – Hang Seng: UP 0.8 percent at 20,671.63 (close)
Oil
Oil steadied around its 2016 high on Friday, supported by expectations of a production freeze by major exporters and dollar weakness that have pushed prices towards a fourth straight weekly gain.
Brent crude’s front-month contract touched $41.71 a barrel — its highest this year — in early trading and was down 7 cents at $41.47 by 1005 GMT.
U.S. crude was up 3 cents at $40.23 a barrel, after rising as high as $40.55. The benchmark had surged by 4.5 percent to close the previous session at $40.20.
Oil prices have climbed by more than 50 percent from 12-year lows reached in December, bolstered as the Organization of the Petroleum Exporting Countries (OPEC) floated the idea of a production freeze, boosting Brent from about $27 and U.S. crude from around $26.
Many analysts think there is still steam in the rally.
Gold
Gold edged down on Friday, as the dollar steadied above a five-month low, but the metal remained on track for a weekly gain after the Federal Reserve scaled down rate hike expectations.
Spot gold was down 0.3 percent at $1,252.91 an ounce by 1457 GMT, while U.S. gold fell 0.9 percent to $1,253.80 an ounce. Spot gold was up around 0.4 percent on the week.
“There has been a bit of selling into the rally in the past couple of days but on whole gold has managed to hang on to its gains,” Mitsubishi Corp analyst Jonathan Butler said.
“With the dovish overall macro outlook – the Fed’s more dovish stance and ECB and Bank of Japan also pursuing very aggressive stimulus policies – affecting the strength of the dollar and U.S. Treasury yields, gold should benefit.”
The dollar rose 0.1 percent against a basket of main currencies, but was still near a 17-month low against the yen and set to end the week 1.5 percent lower.
Expectations the Fed would raise rates steadily this year had faded since the bank’s initial hike in December, as concerns over global growth roiled financial markets.
A low interest rate environment tends to decrease the opportunity cost of holding non-yielding bullion.
Silver rose more than 1 percent to its highest since late October at $16.13. It was up 4 percent this week.
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