The Standard & Poor’s 500 Index capped a fourth weekly gain and closed at the highest level of the year. Photo: AP
Riskier assets from stocks to commodities and emerging-market currencies surged as traders warmed to an unprecedented policy boost from the European Central Bank.
The Standard & Poor's 500 Index capped a fourth weekly gain and closed at the highest level of the year. European equities rallied, while developing-nation shares erased losses for 2016. Credit markets jumped and oil led commodities to a three-month high, while Treasuries fell for a third week on speculation US rates will rise this year.
Stocks and commodities continued a rebound from steep losses at the start of the year, with American equities cutting losses to less than 1.5 per cent after falling to a 22-month low a month ago. Investor sentiment in the aftermath of the ECB's announcements, swinging from optimism the stimulus could boost growth to concern the measures would fall short, illustrates the tension in markets and challenges central banks face in mollifying them after seven years of unconventional policy manoeuvers.
The ECB's stimulus comes amid growing confidence that the US economy has averted any threat of recession that's boosted bets the Federal Reserve will stay on course for tighter policy, while China's leaders have eased concern over their handling of the world's second-largest economy. The Fed, Bank of Japan and Bank of England are all set to meet next week.
"Since the February 11 lows in the equity market, global recessionary fears have receded, and that has been key," Joe Quinlan, chief market strategists at US Trust, Bank of America Private Wealth Management, said by phone. "What the ECB did yesterday helped that momentum and that train of thought become more ingrained, that they will do whatever it takes and then some for global economic expansions."
Stocks
The S&P 500 climbed 1.6 per cent to 2022.07 at 4pm in New York, erasing a loss for the week and closing at the highest level since December 31. The index has trimmed a loss in 2016 to 1.1 per cent. The gauge closed above its 200-day moving average, ending the longest run below that technical level since 2011. Banks, energy and technology shares, which have paced the rebound in equities since mid-February, led gains on Friday.
"What's key for US investors is the euro-dollar rate, and that's back up which is good news for US earnings and for affiliates of multinationals," said Quinlan.
Equities rallied Friday after a late-day rebound on Thursday erased a selloff in the wake of expanded measures announced by the European Central Bank, along with comments by president Mario Draghi that suggested further cuts to interest rates were not likely. Investors today shrugged off worries the ECB steps might not be enough to revive growth, and piled back into shares that have carried the S&P 500's recovery from a 22-month low last month, including energy, raw-materials, technology and financial companies.
While traders are pricing in little chance of a Fed increase on March 16, they have boosted the odds for later in the year. The probability of a June move is now 51 per cent, from less than 2 per cent a month ago, data compiled by Bloomberg show.
Fed officials have stressed that the pace of rate increases, following December's first boost since 2006, will be gradual and data-dependent. Reports on retail sales, industrial production and housing starts are due next week before the meeting.
"The market is now looking forward to the Fed decision next week so it's going to be pretty quiet," said Patrick Spencer, equities vice chairman at Robert W. Baird & Co in London. "This is the most hated bull market ever, but it's all bubbling up back again."
The Stoxx 600 rose to a six-week high, boosted by gains in financial firms and auto makers. On Thursday, after an initial surge when the ECB announced it lowered its key interest rates and expanded its bond-buying program, the gauge erased all of its increase when Draghi said he didn't anticipate further rate cuts. Germany's DAX Index, among the most hurt in this year's selloff, jumped the most since August on Friday.
Gains in stocks weren't limited to Europe as the MSCI Asia Pacific Index added 0.8 per cent.
Commodities
Ore with 62 per cent content delivered to Qingdao retreated 1.4 per cent to $US57.09 a dry metric ton, according to Metal Bulletin. The price has declined every day after Monday's 19 per cent rally to $US63.74, the biggest gain in daily data going back to 2009. Friday's drop was foreshadowed by losses in futures in Singapore, which fell near $US50.
"The insane rise at the start of the week was irrational and is unlikely to continue," Huang Huiwen, an analyst at Shanghai Cifco Futures Co, said before the Metal Bulletin data was released. "Usually after a period of abrupt gains, prices tend to drop back quite sharply. I think we'll see that in iron ore."
However, the Bloomberg Commodity Index, which measures returns on raw materials, advanced 0.7 per cent to a three-month high, led by advances in oil.
Crude capped the longest run of weekly gains since May amid signs of rising US fuel demand and easing crude production. West Texas Intermediate for April delivery added 1.7 per cent to settle at $US38.50 a barrel.
The worst of the commodity rout may be over, according to Australia & New Zealand Banking Group. Sentiment has improved as investors reduce the probability of downside risks amid slightly better fundamentals, ANZ bank analysts including Daniel Hynes said in a research note Friday. The headwinds that a stronger US dollar and volatile equity markets created are easing and the market is increasingly focused on the long-term impact of low prices, according to the bank.
This is not to say we are completely out of the woods," ANZ said. "A weak Chinese PMI for February showed manufacturing activity isn't likely to rebound in the short term. In some markets, a final wave of supply growth is expected to push them further into surplus. That aside, the point where markets start tightening is now close enough to see for investors."
The stepchild of the commodities world is finally getting investors' attention. Agriculture prices are heading for the longest rally in four years, as adverse weather and rising demand finally help to reduce the outlook for global gluts of food supplies.
Emerging Markets
Emerging-market stocks and currencies extended their second week of gains and bonds rallied as oil's rebound above $US40 a barrel and European stimulus boosted demand for riskier assets.
Emerging stocks climbed 1.5 per cent to erase losses for the year, extending a second weekly gain. A gauge of developing-nation currencies climbed to a three-month high as China strengthened the yuan's fixing, spurring a surge in the onshore currency.
Russia's rouble, and South Africa's rand each jumped at least 1 per cent as oil's advance boosted sentiment toward commodity exporters. Brazil's real strengthened for a fourth day and the Ibovespa advanced amid mounting speculation that there will be a change in government.
