Global stocks are in bullish mood as oil prices rally back toward $50 a barrel, Greece seals a new debt deal, and investors come to terms with the prospect of a summer rate hike in the US.
The dollar is pausing after recent gains, while the upbeat tone reduces demand for fixed income assets, inching yields higher.
After the FTSE Asia Pacific index jumped 1.6 per cent, US index futures suggest the S&P 500 in New York will start the new session at 2,087, up 0.5 per cent.
The pan-European Stoxx 600 equity index is advancing 1 per cent as the financial sector welcomes news of a debt relief agreement between Greece and its creditors. The cost for Athens to borrow over 10-years is falling 15 basis points to 7.13 per cent, the lowest charge in six months, and the Greek stock market is climbing 0.2 per cent.
Also seeing gains are shares in resources companies as base metal prices rise and oil resumes its rally off January’s 12-year trough.
Oil
Brent crude, the international energy benchmark, is up 0.9 per cent to $49.01, threatening to break through the $50 mark for the first time since November, while West Texas Intermediate, the US contract for light, sweet crude, is gaining 1 per cent to a seven-month high of $49.12.
The moves come after the American Petroleum Institute reported US crude stocks dropped by 5.1 million barrels last week, suggesting a market glut may have peaked.
Another important source of trader optimism is Wall Street’s strong showing on Tuesday, when the S&P 500 jumped 1.4 per cent, its best one-day gain since March 11.
Analysts had difficulty pinpointing a catalyst for the effervescence, which saw banks and technology stocks rally strongly, albeit in broadly meek trading volume.
Still, raw materials groups were clearly benefiting from rising oil prices, while builders enjoyed news of a rise in new home sales.
Housing
The sturdy housing market report added to expectations that the Federal Reserve will raise interest rates this summer.
But investors now seem to be taking the prospect of higher borrowing costs in their stride, with many analysts arguing the market can absorb such a trend providing the monetary tightening is slow and reflects an improving economy.
US 2-year Treasury yields, which are particularly sensitive to perceptions of monetary policy, are steady at 0.93 per cent, their highest in more than two months.
Benchmark 10-year Treasury yields are up 2bp to 1.88 per cent and equivalent maturity German Bunds are adding 1bp to 0.18 per cent.
The dollar has been strengthening in recent weeks as the market priced in the shortening odds of a Fed rate rise, but now is taking a breather.
Dollar
The dollar index, which measures the greenback against a basket of its peers, and which on Tuesday hit a seven-week intraday high of 96.66, is barely changed at 95.54 as the euro firms 0.1 per cent to $1.1148 following the Greece deal.
Facing downward pressure from the recently stronger US dollar, the People’s Bank of China fixed the reference rate for the renminbi 0.3 per cent softer to Rmb6.5693 per dollar, its weakest level since March, 2011. The so-called onshore renminbi, which trades around that midpoint was 0.1 per cent lower today at Rmb6.5603, its weakest level since early February.
Analysts at DBS note the behaviour of many emerging market currencies this month, as the dollar has risen, has been similar to the volatility led by the Fed’s “taper tantrums” from May to August 2013.
“In Asia ex-Japan, currencies that did not fare well were the same three currencies - Malaysian ringgit, Indonesian rupiah and Indian rupee. Due to high external debt that exceeded foreign reserves, these three currencies are considered vulnerable to a higher USD and higher US interest rates,” they said.
Gold
Wednesday’s firmer oil prices however helped push the ringgit up 0.5 per cent, the rupiah up 0.3 per cent, while the rupee gained 0.4 per cent.
The Australian dollar is adding 0.2 per cent after data showed stronger residential construction, even though the overall value of construction work done, a key input for GDP data, fell 2.6 per cent year-on-year in the first three months of this year, from a revised 2.9 per cent fall in the December quarter.
The Australian stock market was chipper, lifted by commodity stocks that helped the S&P/ASX 200 pop by 1.5 per cent. The move was in keeping with the regional mood, which saw Japan’s Nikkei 225 rise 1.6 per cent, and Hong Kong’s Hang Seng leap 2.7 per cent,
On the Chinese mainland investors were more cautious, leaving the Shanghai Composite to underperform with a 0.2 per cent loss.
Gold is unable to prosper from the stalled dollar, losing $6 to trade at a seven-week low of $1,221 an ounce
– Copyright The Financial Times Limited 2016
