Stock markets around the world rallied yesterday, rebounding from recent weakness on investor hopes for new economic stimulus measures from the European Central Bank and on strong early readings on the US earnings season.
Despite the gains in equities, oil prices continued to slide, with Brent crude sinking 3.5 per cent. US crude futures lost 1.2 per cent, extending their drop of 4.7 per cent on Monday. If oil closes down on the week, that would mark its eighth straight weekly drop.
Policymakers fear cheap oil due to a supply glut could put key economies into a deflationary tailspin, raising expectations that the ECB could launch a large-scale programme of government bond-buying soon, possibly at its January 22 policy meeting.
“It’s no secret that Europe is slowing down and that more stimulus is necessary. I’d say the odds of our getting more are very good, above 90 per cent, but there’s still a lot of uncertainty about what form it will take, and whether the ECB will be able to act in January,” said Michael O’Rourke, chief market strategist at JonesTrading in Greenwich, Connecticut.
The pan-European FTSEurofirst 300 index jumped 1.3 per cent after opening lower. The MSCI International ACWI Price Index added 0.9 per cent.
The Dow Jones industrial average rose 219.63 points, or 1.24 per cent, to 17,860.47, the S&P 500 gained 21.68 points, or 1.07 per cent, to 2,049.94 and the Nasdaq Composite added 71.94 points, or 1.54 per cent, to 4,736.65.
Equities have been volatile of late, with the S&P 500 posting numerous moves of more than one per cent.
“That makes it hard to read too much into today’s move and evaluate if it is sustainable,” O’Rourke said.
The weakness in oil prices, which have plunged almost 60 per cent since June, has been a major contributor to both market volatility and market weakness. The S&P 500 is coming off a two-week decline.
Alcoa Inc late Monday reported fourth-quarter earnings that beat expectations, though shares fell 1.7 per cent yesterday to $15.90. The aluminum maker is no longer a Dow component but as one of the first major names to report it is seen as informally setting the tone for the earnings season.
The US dollar index rose 0.3 per cent against a basket of currencies, and gained 0.3 per cent against the euro at $1.1794. It rose 0.1 per cent against the yen.
Eurozone government bond yields fell on the prospect of looser ECB policy and a slew of eurozone countries sold debt in a bid to lock in ultra-low borrowing costs. The benchmark 10-year US Treasury note traded down 4/32 in price to yield 1.9275 per cent.
Copper prices sank 2.8 per cent, on track for their fifth straight daily decline despite strong trade data from China and signs of physical demand.
Gold rose 0.5 per cent while silver added four per cent.