World stocks rose sharply yesterday as prices of the safehaven yen and US Treasuries fell, a day after Crimea’s vote to join Russia passed without major violence, easing fears that had driven world stocks to a one-month on Friday.
The yen fell broadly after the US and the European Union imposed what investors perceived to be only modest economic sanctions on some officials of Russia and Ukraine following Crimea’s vote to join Moscow.
Although investors are not ruling out another flare-up in tensions between Russia and Ukraine, many do not expect contagion to major markets. The lack of military conflict between the two countries also appeased investors.
“The sanctions don’t sound particularly aggressive,” said Richard Franulovich, senior currency strategist at Westpac Securities in New York. “Also, some of the worst-case scenarios they were anticipating over the weekend, such as actual military engagement, did not really materialise.”
Wall Street opened sharply higher on Monday, up more than one per cent, rebounding from last week’s steep decline.
“This is a classic example of too much fear and anxiety having been in the market. Last week’s decline more than discounted any bad news that could be reasonably expected to come out,” said Donald Selkin, chief market strategist at National Securities in New York.
The Dow Jones industrial average rose 187.19 points, or 1.17 per cent, to 16,252.86.
The S&P 500 gained 18.45 points, or one per cent, to 1,859.58, and the Nasdaq Composite added 45.208 points, or 1.06 per cent, to 4,290.605.
The geopolitical tension over Ukraine weighed on equities last week, with the S&P 500 suffering its biggest weekly loss in seven and the CBOE Volatility index jumping to its highest level since early February on Friday.
The MSCI world equity index, which tracks shares in 45 countries, rose 0.7 per cent, after hitting a one-month low on Friday. The dollar rose 0.4 per cent against the yen, to 101.76 yen, after four days of losses.
The euro gained 0.6 per cent against the yen, to 141.83 yen . It also climbed against the dollar, to $1.3941, despite a dip in eurozone inflation, the latest indicator to argue for outright money-printing by the European Central Bank to support growth.
Europe’s common currency has traded within a cent of a two-and-a-half-year high around $1.3967 since Thursday, when the ECB president, Mario Draghi, voiced concerns about the euro’s strength.
European stocks rose 1.1 per cent, and the broader Euro STOXX 600 rose around 1.2 per cent. Emerging stocks added 0.6 per cent.
Shares from the mining and industrial sectors featured among the biggest gainers, with BHP Billiton up 1.2 per cent and ArcelorMittal up 1.12 per cent.
In the latest economic data, the New York Fed’s Empire State gauge of New York manufacturing rose in March, helped by increases in new orders and inventories, though the rise was less than forecast. Separately, US industrial output rose 0.6 per cent in February, a far bigger rise than had been expected.
“The data gives us another kick up, since it is another sign that we’re recovering from recent weather issues,” said Selkin, who helps oversee about $3 billion in assets.
With the Crimea vote out of the way, investors are now focusing on the Fed’s two-day policy meeting that begins today; the central bank is expected to continue to reduce the size of its bond purchase program but alter its forward guidance.