Stocks are rallying while government bond prices are falling as better than expected Chinese trade data, a more stable renminbi and firmer oil prices bolster investors’ risk appetite.
The upbeat tone is helping base metals advance in spite of a stronger dollar. Gold is down $4 to $1,082 an ounce, writes Jamie Chisholm.
The pan-European Stoxx 600 equity index is up 1 per cent after Japan led Asian bourses higher with a 2.9 per cent pop.
US index futures suggest the S&P 500 will open at 1,947, adding 8 points to the 15 gained in the previous session.
The rally comes after a miserable first week of the year for global bourses, when the S&P 500 shed 6 per cent. Investors were rattled by growing fears the post-financial crisis bull market was over amid concerns plunging oil prices and a sharply weaker Chinese currency signalled waning growth in the world’s second biggest economy.
The correlation between the oil price and broader market sentiment has become particularly tight of late. Wall Street’s move off three-month intraday lows on Tuesday coincided with WTI crude recovering the $30 a barrel level through which it had fallen for the first time in 12 years.
The current session sees WTI, the US-domiciled oil contract, up 1.6 per cent to $30.91, and Brent crude, the international energy benchmark, adding 0.5 per cent to $31.01.
Many analysts remain bearish on the energy sector given the oil market’s supply glut — US oil inventory data will be published on Wednesday — with many talking of prices dropping near $20 a barrel.
“Rapidly increasing market expectations of economic turmoil are outstripping the slow recalibration of global supply,” said Royal Bank of Canada.
However, currently helping underpin commodity prices — base metals are mostly higher — is some better than expected data from China.
Exports in December rose 2.3 per cent year-on-year in renminbi terms, outstripping expectations of a 4.1 per cent fall. That was the first gain since last June and the biggest since February. Imports fell 4 per cent, a better result than the 7.9 per cent drop economists expected.
Subsequent figures showed that in US dollar terms, exports fell 1.4 per cent year-on-year while imports sank 7.6 per cent — though also shallower than economists’ forecasts and still an improvement on November’s declines. The trade surplus came in at $60.1bn, above market forecasts.
The trade figures followed a decision by the People’s Bank of China to keep the reference rate for the renminbi basically steady for a fourth straight day, at Rmb6.563 per dollar.
This week, the PBoC is believed to have intervened to curb currency depreciation by buying renminbi offshore, driving short-term renminbi-denominated borrowing costs to record highs in Hong Kong — making it costly to short the offshore unit. That caused the onshore and offshore renminbi rates to hit parity on Tuesday for the first time since late October.
The Shanghai Composite fell back by 2.4 per cent but the mood across most of the Asia-Pacific was bullish.
Hong Kong’s Hang Seng gained 1.2 per cent and Australia’s S&P/ASX 200 advanced 1.3 per cent, as rebounding financial and energy stocks helped Sydney end an eight-session losing streak that matched its longest since the financial crisis.
Better risk appetite is supporting commodity currencies — the Aussie is adding 0.4 per cent ahead of Thursday’s jobs data — and hurting perceived havens like the yen, off 0.6 per cent.
Similarly, core government bond prices are drifting lower — pushing yields higher — as demand for fixed income “safety” dwindles. The US 10-year Treasury yield is up 2 basis points to 2.12 per cent and equivalent maturity German Bunds are 1bp firmer at 0.54 per cent.