Global Market Overview

Last updated: March 25, 2014 8:16 pm

Stocks rally as Ukraine worries ease

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Tuesday 20:00 GMT. US and European stocks regained their upward momentum as concerns about the situation in Ukraine appeared to ease and speculation grew that China could adopt fresh stimulus measures to bolster its flagging economy.

The prospect of policy easing in the eurozone also moved back on to the agenda following some relatively dovish comments from European Central Bank officials.

In New York, the S&P 500 equity index ended 0.5 per cent higher after a choppy session, leaving it about 13 points below its record closing high, as participants digested a mixed batch of reports on US home sales and prices, and consumer confidence.

“The housing market is clearly cooling – witness softer new home sales,” said Nick Stamenkovic, macro strategist at RIA Capital Markets.

“Even house prices are losing momentum as last summer’s mortgage rate hike take its toll. By contrast, consumers remain in good spirits judging from the latest upbeat Conference Board consumer confidence survey.”

Across the Atlantic, the FTSE Eurofirst 300 easily outperformed Wall Street as it gained 1.3 per cent, while the Nikkei 225 in Tokyo slipped 0.4 per cent.

It was a positive session for Russian assets, with the Micex stock index rising 2 per cent and the rouble gaining 1.5 per cent against the dollar.

Vladimir Osakovskiy, an economist at BofA-Merrill Lynch, said that in spite of the strong headwinds facing the Russian economy, it was still premature to talk about recession.

“Even though downside risks to our weak 1.4 per cent real GDP outlook for 2014 exist, exports and a structurally tight labour market should supplement the positive impact of a weaker rouble to keep the economy growing, offsetting further investment weakness,” he said.

However, there were signs that the recent events in Ukraine had hurt sentiment in Germany. The Ifo business climate index fell in March for the first time since October.

“The Crimean conflict virtually coming out of the blue has weighed on forward-looking business expectations,” said Andreas Rees, chief German economist at UniCredit.

Meanwhile, there were reports overnight that Chinese leaders were putting together contingency programs to prevent the economy from slowing down further, including loosening regulations on private investment and accelerating public spending.

But analysts also highlighted that the authorities had little scope to provide further monetary policy stimulus, and warned that pushing for stronger growth rate might risk a bigger crisis in the future.

Nevertheless, the stimulus hopes offered some support to Shanghai equities – the composite index edged up 0.1 per cent – and helped push the China-sensitive Australian dollar to its highest level against its US namesake this year.

The “Aussie” was up 0.4 per cent at $0.9165 – near to levels that the Reserve Bank of Australia had characterised as “uncomfortably high” in December, noted Adam Cole, head of G10 FX strategy at RBC Capital Markets.

“The focus will be on whether we see renewed ‘jawboning’,” he said. “With the threat of lower rates removed after the RBA shifted to a neutral bias, however, the central bank’s ability to talk the currency down is much reduced.”

Meanwhile, the euro had a volatile session, falling more than 0.6 per cent against the dollar as several ECB members attempted to talk the currency lower.

Jens Weidmann, Bundesbank president, said the ECB could consider purchasing eurozone government bonds or top-rated private sector assets. Mario Draghi, ECB president, stressed the bank’s readiness to act if required

The single currency , however, subsequently recovered to stand just 0.1 per cent lower at $1.3825.

“Try as the ECB might, its efforts [to talk down the euro] will only work if it comes against a backdrop of hawkish Federal Reserve expectations,” said Divyang Shah, global strategist at IFR Markets.

The yield on the German 10-year government bond held steady at 1.58 per cent, while that on the equivalent-maturity US Treasury was 1 basis point higher at 2.75 per cent.

Gold bounced $2 to $$1,311 following the previous day’s sharp fall.

Among industrial commodities , copper jumped 2 per cent to a two-week high on hopes that demand for the metal could be boosted by any Chinese stimulus efforts. Brent crude settled 18 cents higher at $106.99.

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