US and European stocks came off their lows on Wednesday, helped by rebounding oil prices, while a soft report on the US services sector weighed on the dollar by making future rate hikes appear less likely.
The US dollar hit its lowest level against the euro since October and wiped out recent gains against the yen. A top Federal Reserve official said the weakening outlook for the global economy and any further strengthening of the dollar could have “significant consequences” for the US economy.
The US economy’s service sector expanded in January at a slower pace than the previous month, according to the Institute for Supply Management. Investors had been encouraged earlier in the session by data from a payrolls processor that found US private employers added 205,000 jobs in January, above economists’ expectations.
The Dow Jones industrial average rose 25.2 points, or 0.16 per cent, to 16,178.74, the S&P 500 lost 5.91 points, or 0.31 per cent, to 1,897.12 and the Nasdaq Composite dropped 34.63 points, or 0.77 per cent, to 4,482.32.
European shares fell as weak earnings from some leading companies weighed.
The pan-European FTSEurofirst 300 index fell 2.1 per cent, amid disappointing earnings from Finnish state-controlled utility Fortum and Dutch telecoms group KPN.
Data showed eurozone businesses had a disappointing start to 2016, with growth in January matching the worst seen last year.
MSCI”s 46-country All World share index fell 1 per cent.
Equities have been tightly correlated to oil in recent weeks as the commodity’s 1-1/2-year slide has deepened, with investors worried that oil’s slide is a sign of shakiness in the global economy.
Oil rose after investors took advantage of a drop in the US dollar and earlier weakness in the crude price, despite weekly data showing a surprisingly large rise in US inventory. Russia also repeated its willingness to take part in talks with OPEC producers to cut output.
US crude gained 5.2 per cent to $31.42 a barrel, while benchmark Brent crude gained 5 per cent to $34.37 a barrel.
Financial conditions have tightened considerably since the Fed raised interest rates and monetary policymakers will have to take that into consideration should that phenomenon persist, said William Dudley, president of the Federal Reserve Bank of New York.
Dudley’s comments, combined with the ISM data, raised skepticism about the Fed’s ability to further raise rates, weighing on the dollar.
The greenback fell 1.3 per cent against a basket of currencies, while the euro gained 1.2 per cent against the dollar. US Treasury yields fell to a one-year low .
Benchmark 10-year note yields were last up 16/32 prices to yield 1.8104 per cent, from 1.83 per cent overnight. At one point, yields fell below technical resistance to a low of 1.7930 per cent, the lowest since February 5, 2015.