Tuesday 21:00 GMT. Soaring oil prices, an easing of tensions over Greece and further central bank policy accommodation provided the backdrop to a strong performance for US and European equities. There were sharp falls for Treasury bond prices and gold.
Brent crude rose another 5.8 per cent to $57.91 a barrel — a fourth successive advance and the highest settlement since late December. The international oil benchmark has now rallied more than 28 per cent from a five-year low of $45.19 in the middle of last month.
Capital expenditure cuts by major oil producers and industry data showing a drop in the number of US rigs in operation have supported the rebound.
But Ole Hansen, head of commodity strategy at Saxo Bank, said while oil’s upward momentum was shaking out short positions, “fundamentals did not justify a major recovery at this stage, considering expectations that the global supply glut could rise even further over the coming months.
“Rising crude oil prices will make it possible for many shale producers to restart their forward hedging at profitable levels and thereby maintain production levels.”
Energy stocks were big gainers on both sides of the Atlantic, while miners were helped by rising metals prices. Wall Street got an extra boost from news of stronger than expected US car sales in January.
In New York, the S&P 500 equity index rose 1.4 per cent to 2,050 while the FTSE Eurofirst 300 ended 0.8 per cent higher. The price of copper jumped 3.3 per cent in London to 5,680 a tonne, the biggest one-day gain since July 2013.
Greek stocks were the day’s star performers as the ATG index jumped 11.3 per cent, led by a rebound for banks. Athens’ 10-year implied borrowing cost fell the most since 2012 as it eased back below 10 per cent.
The rebound came after Greece’s new government said it would abandon its call for half the country’s debt to be written off and would instead request a “menu of debt swaps” to ease its burden.
“The new government’s change of heart is a reflection of the absence of real options available to it other than accept to play the game mostly on the terms of its lenders, while trying to extract as many concessions as possible by altering certain aspects of the memorandum in place,” said Anthony Karydakis, chief economic strategist at Miller Tabak.
“ We should view the risk of a major debacle related to Greece as having dropped dramatically . . . Eurozone markets can therefore focus on the more fundamental issues of underlying economic growth and assessing the effectiveness of the European Central Bank’s unfolding quantitative easing programme.”
Relief was evident in “peripheral” eurozone stock markets, with Spanish and Italian stocks rallying 2.7 per cent and 2.6 per cent respectively, although yields on both countries’ government bonds edged back only modestly. By contrast, the German Bund yield rose 4 basis points to 0.35 per cent — but was still below the 0.36 per cent yield of Japan’s 10-year government bond for the first time.
Divyang Shah, global strategist at IFR Markets, noted headline comments about the “Japanification” of the eurozone, but argued that the move was largely down to a poor JGB auction that saw the 10-year yield rise 8bp to 0.365 per cent.
“The 10-year JGB yield has doubled since mid-January with the finger pointing to low risk appetite as dealers were still nursing their wounds from the recent volatility,” he said.
The improved risk appetite in the markets pushed the US 10-year Treasury yield up 11bp to 1.78 per cent, putting it on course for the biggest one-day rise since November 2013, according to Reuters data.
Australia’s 10-year yield tumbled to a record low of 2.27 per cent after the central bank became the latest to join policy easing.
The Reserve Bank of Australia cut its main interest rate 25bp to a record low of 2.25 per cent, the first easing in 18 months, in response to slowing inflation and growth concerns.
But the “Aussie” dollar recovered from a steep early slide to trade flat at $0.7797.
“It was a move that had been talked about in the press but was not fully discounted by the market, hence the sharp slide in the Aussie that resulted,” said Steve Barrow, head of G10 strategy at Standard Bank. “The market has also moved to discount further reductions.”
The US currency was weaker against most of its major peers, with the dollar index down 1 per cent and the euro up 1.3 per cent at $1.1483. Rallying oil prices pushed the Russian rouble 4.8 per cent higher against the dollar, while the US currency fell 1.4 per cent compared with its Canadian counterpart to C$1.2396.
The falling dollar failed to support the gold price, with the metal down $14 at $1,260 an ounce.
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