Wednesday 21:00 GMT. US stocks rose for a third successive day as a strong rebound for oil prices helped underpin a recovery in risk appetite in the wake of last week’s market turmoil.
The big gains for crude came as Iran gave a cautious welcome to a proposed freeze on oil output by the world’s largest producers, but stopped short of saying it would curb its own production.
There was a relatively muted impact from the minutes of the Federal’s Reserve’s policy meeting last month, which yielded little fresh information.
They showed that policymakers were wary of rushing to premature conclusions about the implications of recent market turbulence, but most agreed that the outlook had become more clouded.
“The January Fed Open Market Committee minutes were dovish, clearly signalling increased global downside risks and some members noting increased uncertainty about the inflation outlook,” said Nick Stamenkovic, macro strategist at RIA Capital Markets.
“Clearly the outlook for the US economy has worsened recently, increasing the risk of a prolonged pause by the Fed.”
In spite of the renewed upward momentum for stocks. analysts noted an undertone of caution in the markets amid lingering uncertainty about the health of the global economy — with China still a major concern — and the impact of central bank policy on the banking sector.
“Three factors have helped investor sentiment,” said Divyang Shah, global strategist at IFR Markets.
“First, the Federal Reserve has extended its wait-and-see attitude to further policy normalisation; second, the People’s Bank of China has started to communicate positively with the market to lower uncertainty over its objectives; third, oil producers are working actively to try and deal with the issue of destabilising excess supply.”
But he added: “How much European Central Bank and Bank of Japan stimulus serves as a positive is an open question, given the market concerns over the quantitative easing/negative interest rate policy fallout on bank balance sheets.
“The fact that risk markets are only now showing signs of a tentative recovery highlights how the actions of major central banks have stabilised conditions, rather than serve as a reason to jump back on the risk-taking bandwagon.”
But bulls certainly had the upper hand on Wall Street on Wednesday as the S&P 500 equity index jumped another 1.7 per cent to 1,926, taking its rally from a two-year intraday low struck last Thursday to 6.4 per cent. Energy stocks were up 3 per cent.
Across the Atlantic, the Euro Stoxx 600 index rose 2.6 per cent, leaving it 8.7 per cent up from its trough last week.
Japanese stocks succumbed to profit-taking, with the Nikkei 225 retreating 1.4 per cent, although the Shanghai Composite rose 1.1 per cent to a three-week high.
There was little lasting impact from the People’s Bank of China’s decision to weaken the daily renminbi/dollar reference rate.
Weekend comments from the central bank’s governor — plus the PBoC’s move on Monday to strengthen the fixing, leading to the renminbi’s biggest one-day gain in more than a decade — had helped soothe worries about a further depreciation of the currency.
“Since the August devaluation of the renminbi versus the dollar, uncertainty about how far the currency could be allowed to move has been heightened,” said Jane Foley, senior currency strategist at Rabobank.
“The economies of commodity producers in the emerging world are already reeling and there are widespread fears that a weakening in the value of the renminbi would deal an additional blow to world trade flows.
“On the other hand, without a softer renminbi, the ability of the Chinese economy to muddle through its current economic quagmire without a hard landing will be lessened. “
But currency concerns took something of a back seat in terms of driving market action on Wednesday. Instead the focus returned to the price of oil, as an agreement between Russia and Saudi Arabia to freeze output — if they are joined by other big producers — continued to reverberate around the markets.
The deal was initially greeted with scepticism, with many in the markets highlighting that much would depend on the inclusion of Iran and Iraq in the agreement.
Tehran said that it supported the efforts to stabilise prices, but did not offer to join the initiative, highlighting how difficult it would be for the country to scale back its full return to world oil markets after years of sanctions.
Nevertheless, Brent crude settled 7.2 per cent higher at $34.50 a barrel, while US West Texas Intermediate was up 5.5 per cent at $30.64.
Base metals prices put in mixed performances with copper rising 0.7 per cent in London to $4,589 a tonne but lead sliding 3.1 per cent — its biggest daily fall in nine months — to $1,734.
Gold, meanwhile, rose $7 to $1,207 an ounce, in spite of a faltering performance by the dollar.
The US currency was 0.1 per cent weaker against a weighted basket of peers, as it slipped 0.2 per cent against the yen to Y113.83 but the euro edged back 0.1 per cent to $1.1133.
Sterling fell another 0.1 per cent to $1.4288 as the threat of a UK exit from the European Union kept the pound reined in.
The renewed gains for equity indices, plus some reassuring US economic data, undermined demand for government bonds. The yield on the 10-year Treasury note, which moves inversely to its price, was up 4 basis points at 1.81 per cent, while the 10-year German Bund yield rose 2bp to 0.28 per cent.
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