Global stocks rally as dollar sinks after Fed

(iStock)
(iStock)

Hong Kong - Global stocks rallied with commodities and the dollar sank to a five-month low after the Federal Reserve scaled back its projection for US interest-rate hikes.

The Stoxx Europe 600 Index rose for a second day and the MSCI Asia Pacific Indexclimbed by the most in two weeks. Oil, copper and zinc all jumped by more than 2%, with crude trading above $39 a barrel in New York. South Korea’s won had its biggest gain since 2011 versus the greenback, while better- than-expected economic data gave spurred appreciation in the Australian and New Zealand dollars. Sovereign bonds rallied across Europe and almost all of Asia as US Treasuries extended gains.

Fed officials predicted two quarter-point rate increases for this year at a Wednesday policy meeting, having forecast four in December when they boosted borrowing costs for the first time in almost a decade.

In adopting a move dovish stance, the US central bank cited risks to global economic growth that have spurred monetary easing in China, Europe and Japan over the past two months. The Bank of England will review interest rates on Thursday, along with counterparts in Indonesia, Norway, South Africa and Switzerland.

“The Fed’s stance is relatively friendly,” said Mitsushige Akino, executive officer at Ichiyoshi Asset Management in Tokyo. “The difference in the stance between the market and the authorities has shrunk, and we’ve managed to get through an important event without drama. Investor sentiment has returned to a neutral zone from a bearish zone that had priced in too much concern.”

Almost $9trn was wiped off the value of global stocks in the first six weeks of the year as a sliding oil price and concern about the state of China’s economy spurred a selloff in the securities.

Crude has since rebounded to levels last seen in early December and equities have recouped some $5trn of their losses. Fed chair Janet Yellen said last month that market turbulence had “significantly” tightened financial conditions by pushing down stock prices, strengthening the dollar and boosting some borrowing costs.

“The Fed has clearly been rattled by the nasty selloff seen at the start of 2016,” Angus Nicholson, a market analyst in Melbourne at IG, said in an email to clients. Wednesday’s policy update "was far more dovish than markets had expected,” he wrote.

Stocks

The Stoxx Europe 600 Index rose 0.6% as of 10:24. LafargeHolcim, the world’s largest cement maker, added 0.2% and Deutsche Lufthansa AG dropped 4.5% after the two companies reported earnings. Futures on the Standard & Poor’s 500 Index advanced 0.4%.

 The MSCI Asia Pacific Index jumped 2%, set for its highest close since early January. BHP Billiton, the world’s biggest mining company, climbed 2.4% in Sydney. Benchmarks in Australia, Hong Kong and Shanghai posted gains of at least 1%.

China Mobile, the world’s largest phone carrier, retreated more than 2% from this year’s high in Hong Kong after reporting an annual profit that fell short of analyst estimates. Rival China Unicom (Hong Kong) jumped 9.1%, the most since 2011, on better-than-expected earnings. Toshiba tumbled as much as 10% in Tokyo after it was said to be facing a US probe into alleged accounting fraud at its nuclear power operations.

Commodities

The Bloomberg Commodity Index climbed 1.5%, headed for its highest close since early December.

West Texas Intermediate crude oil surged 2.8% to $39.54 a barrel. US output slid to the lowest level since November 2014 and inventories expanded by 1.3 million barrels, the smallest increase in five weeks, data showed on Wednesday. Major oil-producing nations plan to meet April 17 in Doha to discuss a commitment to freezing output, Qatar’s energy minister said.

Copper jumped 2.6% to more than $5 000 a metric ton in London, while zinc climbed 3% and lead gained 2.3%.

Currencies

The Bloomberg Dollar Spot Index, which tracks the US currency against 10 major peers, sank 0.6% after losing 1.1% in the last session.

“Currency reaction suggests market expectations for the Fed’s rate outlook were slightly more bullish,” Hiroshi Kurihara, chief US economist at Bank of Tokyo-Mitsubishi UFJ in New York. “The dollar’s been sluggish despite some positive signs over growth, hinting that it’s sensitive to negative news and that its advance may not be strong even as a rate hike approaches.”

South Korea’s won led gains among major currencies, surging 1.7%. Australia’s dollar advanced 1.3% to an eight- month high after the nation’s jobless rate unexpectedly declined, while New Zealand’s currency strengthened 1.6% after fourth-quarter economic growth beat projections. Indonesia’s rupiah gained 1.3% before a forecast cut in interest rates at a central bank policy meeting on Thursday.

“Emerging-market and Asian currencies should do well because at least for the next month or two the Fed is likely to remain dovish unless data picks up really strongly," said Binay Chandgothia, a Hong Kong-based fund manager at Principal Global Investors, which manages $331bn, told Bloomberg TV.

The yen strengthened 0.9% versus the dollar, while the British pound and Switzerland’s franc gained 0.2%.

The Bank of England is forecast to leave interest rates unchanged on Thursday and maintain current stimulus levels, while the Swiss National Bank is seen sticking with its ultra- loose monetary policy.

Rand was also steady with analysts evenly split on whether or not the nation’s central bank will raise borrowing costs. The Norwegian krone appreciated 0.8% before an expected cut in borrowing costs.

Bonds

The Fed’s lowering of its projected path for interest-rate increases fueled gains in fixed-income securities. Australia’s 10-year bond yield fell eight basis points to 2.55%, Singapore’s tumbled 16 basis points to 2.03% and the UK’s slid 11 basis points to 1.42%. Rates on similar- maturity US Treasuries fell four basis points to a one-week low of 1.87%.

Japan’s 10-year bonds yielded minus 0.05%. The government sold 20-year debt at an average yield of 0.427%, a record low.

South Africa’s 10-year bonds rose for the first time in four days, pushing their yield down by 29 basis points to 9.17%. The securities slid over the last three days amid worsening political turmoil that’s seen Finance Minister Pravin Gordhan caught up in a police probe and accusations of cronyism leveled at President Jacob Zuma’s administration.

ZAR/USD
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52483.78
(-0.20)
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