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Oil Advances Take Europe, Asia Stocks Going Up

European and Asian shares rallied with U.S. stock index futures and commodities as China strengthened the yuan’s fixing by the most in four months, weighing on the dollar after the European Central Bank signaled an end to interest-rate cuts.

The Stoxx Europe 600 Index jumped the most in two weeks, while a Bloomberg gauge of commodities prices climbed to a three-month high. Crude oil surged 2.3 percent, while industrial metals advanced. The yuan erased losses for the year, the currencies of resource-exporting nations appreciated and the Bloomberg Dollar Spot Index held near its lowest level since October. The euro retreated, having strengthened the most in a month on Thursday after ECB President Mario Draghi damped expectations of more interest-rate cuts following a fresh round of monetary stimulus.


Central banks are playing a leading role in determining the direction of global financial markets this week and next. The ECB’s actions whipsawed European stocks over the past two days, while the People’s Bank of China whet risk appetite with Friday’s strengthening of the yuan fixing. The Bank of Japan will be center stage when a policy meeting concludes on Tuesday, and the Federal Reserve decides on U.S. interest rates two days later.

“China followed the ECB in refraining from pushing down its exchange rate,” Tommy Ong, a managing director for treasury and markets at DBS Hong Kong Ltd. “Broad-based dollar weakness means higher commodity prices and also means higher-to-more stable Asian emerging-market currencies as there’s less concern about capital outflows.”

An annual meeting of China’s legislature continues Friday and the nation is due to release figures on industrial production, retail sales and fixed-asset investment on Saturday.

Stocks

The Stoxx Europe 600 Index climbed 1.8 percent as of 8:14 a.m. London time. It closed down 1.7 percent on Thursday, after surging as much as 2.5 percent following the ECB’s announce of interest-rate cuts and increased asset purchases.

Futures on the Standard & Poor’s 500 Index rallied 1.1 percent and the MSCI Asia Pacific Index rose 0.7 percent, reversing an earlier loss. Japan’s Topix index gained 0.5 percent, Hong Kong’s Hang Seng Index rallied for the first time this week and the Shanghai Composite Index added 0.2 percent.

"The market was oversold considering the fact that the ECB announced additional stimulus,” said Tomoichiro Kubota, a senior analyst at Matsui Securities Co. in Tokyo."The ECB has put a stop to further expansion of negative rates, which were cutting into bank earnings."

Commodities

The Bloomberg Commodity Index advanced 0.7 percent, headed for its best close since Dec. 4.

Crude oil jumped as much as 2.7 percent to a three-month high of $38.86 a barrel in New York amid signs of rising U.S. fuel demand and easing crude production. Gasoline consumption the past four weeks was at the highest level since September, while crude output remained near the least since November 2014, according to data from the Energy Information Administration Wednesday. Stockpiles still remain at the most since 1930.

Copper, nickel and tin all rose by about 1 percent in London. The weaker dollar makes raw materials less expensive in other currencies just as economic stimulus measures in China, Europe and Japan are helping to support demand. Commodities are showing signs of bottoming with supply growth in industrial metals slowing considerably, analysts at Australia & New Zealand Banking Group Ltd. led by Daniel Hynes said in a note Friday.

Currencies

The Bloomberg Dollar Spot Index was little changed, set for a 0.7 percent weekly loss. The euro retreated 0.4 percent against the greenback, having surged 1.6 percent on Thursday after Draghi’s comments on interest rates.

“The ECB pulled out its bazooka overnight and unleashed a bold package of stimulus which exceeded or met expectations on every count,” Matthew Sherwood, head of investment strategy at Perpetual Ltd. in Sydney, said in an e-mail to clients. "But then the ECB president in his news conference suggested that there would not be deeper cuts to negative regional deposit rates, which seemingly limits the extent to which the ECB can use policy to lower the euro.”

The yuan strengthened as much as 0.32 percent versus the greenback, briefly erasing its loss for the year, after the People’s Bank of China strengthened its daily reference rate by 0.34 percent. The magnitude of the PBOC’s change was a surprise, according to Khoon Goh, senior currency strategist at ANZ in Singapore.

The boost to the yuan also lifted the currencies of countries that export raw materials. Australia’s dollar approached its highest level since July, Canada’s climbed toward a four-month high, South Africa’s rand surged 1.4 percent and the Russian ruble jumped 1.5 percent.

“Supporting the Aussie was the PBOC’s” yuan fixing, “which weighed on the U.S. dollar against most major currencies,” said Elias Haddad, an exchange-rate strategist at Commonwealth Bank of Australia in Sydney.

Bonds

Sovereign bonds rallied in Europe, pushing Germany’s 10-year yield down by four basis points to 0.27 percent. France’s yield fell five basis points to 0.63 percent.

Source : Bloomberg Business
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