Global equity markets surged and the dollar hit a nine-year high yesterday, lifted by the Federal Reserve's confidence in the US economy and hopes of aggressive new stimulus in Europe.
Stocks on Wall Street rose about 1.6 per cent and in Europe equities jumped around three per cent as investors' set aside fears from a few days ago that the collapse in oil prices pointed to a slowing global economy.
Brent oil fell and US crude see-sawed near break-even, while prices for US and German government debt fell on the growing confidence the European Central Bank will launch a bond-buying programme to combat slowing economic growth.
In the latest sign of a strong US economy, the number of Americans filing new claims for unemployment benefits fell last week and job cuts declined sharply in December, suggesting a tightening labor market.
Europe, the president of the ECB said the bank's Governing Council stands ready to take unconventional measures if needed to stem a prolonged period of low inflation.
The Fed appeared to firmly conclude that the US recovery was here to stay in minutes released on Wednesday from its December policy-setting meeting, despite a global deflation threat and potential turmoil from plunging oil prices.
“The decline in the price in oil, sure it spoke volumes about potential headwinds for the global economy,” said Andrew Wilkinson, chief market strategist at Interactive Brokers LLC in Greenwich, Connecticut. MSCI’s all-country world stock index rose 1.91 per cent, while the FTSEurofirst 300 index of top European shares surged 2.87 per cent to close at 1,368.37 points.
The German, French and Italian stock market indexes each rose more than three per cent.
On Wall Street, the Dow Jones industrial average rose 282.54 points, or 1.61 per cent, to 17,867.06. The S&P 500 gained 32.89 points, or 1.62 per cent, to 2,058.79 and the Nasdaq Composite added 82.07 points, or 1.76 per cent, to 4,732.54.
A slump in German industrial orders in November and a drop in euro zone consumer inflation expectations reinforced bearish views of the euro as the US data also helped push the single currency to a nine-year low, for a fifth day of losses.
The euro fell to $1.17540, its lowest since December 2005, on the EBS trading platform, and last traded at $1.1812, a decline of 0.21 per cent. The euro’s weakness kept the dollar index at nine-year highs. Against the yen, the dollar climbed to 119.52 yen.
Oil fell below $51 a barrel as bulls and bears searched for a floor to the prolonged rout.
Brent crude fell 37 cents to $50.78 a barrel. US crude fell four cents to $48.61 a barrel.