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The cautious mood in stocks is encouraging buyers of government bonds, nudging down Treasury yields. The gold price is higher, and so is the yen.Brent crude, the international energy benchmark is up 0.7 per cent to $50.09 a barrel, the highest level since November, while West Texas Intermediate, the US marker, is adding 0.7 per cent to $49.89.Oil’s fresh burst of strength, which continues its recovery from January’s 12-year low around $27, comes amid hopes that a global oversupply glut is easing following supply disruptions in Canada and Nigeria, evidence of improving demand, and news this week that US crude stockpiles fell more than expected.Oil’s rebound has lifted broader market sentiment of late by bolstering the resources sector and reducing concerns about banks’ exposure to problem energy-related loans. Crude’s bounce has also eased fears that oil-producing nations may be forced to sell assets from investment portfolios in order to raise funds.Strength in commodity stocks — alongside a rally for banks and signs that investors are returning to big technology momentum plays — has been a major factor behind the S&P 500 on Wall Street and the Stoxx 600 hitting four-week highs on Wednesday Traders cite little more than some “top of the range” profit-taking behind equity markets’ mild pullback on Thursday.Investors also appear to have become more sanguine about the prospects for further interest rate rises this year by the US Federal Reserve, an issue upon which moves in the energy market are having an impact, according to Richard Turnill, chief investment strategist at BlackRock.
“Oil supply has tightened, and demand is picking up, primarily out of China and India. This suggests current prices look increasingly sustainable, unless we get a significant reopening of idled shale-oil production. It points to energy’s downward pressures on inflation beginning to subside, in line with the view expressed in hawkish Fed meeting minutes released last week,” he said.
With Fed fund futures pricing in a one in three chance that the Fed will raise borrowing cost by 25 basis points at its meeting in June, the dollar and bond yields are easing back from recent multi-week highs.Ten-year Treasury yields, which move inversely to the bond price, are off two basis points to 1.85 per cent as equivalent maturity German Bunds hold steady at 0.16 per cent.The dollar index, a measure of the US currency against a basket of global peers, is down 0.1 per cent to 95.22, providing broad support for a range of commodity prices.Gold, which on Wednesday fell to a seven-week low of $1,217 an ounce in the face of looming Fed tightening and a firmer buck, is up $5 to $1,229 an ounce.Dollar-denominated base metals are mostly on the up, displaying stoicism in the face of an independent report suggesting China’s industrial sector contracted in the first quarter of 2016.China’s Shanghai Composite equity index is up 0.1 per cent, just above its lowest close since mid March, while Hong Kong’s Hang Seng is off 0.1 per cent, though underpinned by the global resource sector rally.That also helped Sydney’s S&P/ASX 200 climb 0.3 per cent, and bolstered emerging market commodity currencies like the Indonesian rupiah and Malaysian ringgit.A notable currency performer is the Japanese yen, which in Asian trading suddenly strengthened and is now up 0.4 per cent to ¥109.71 per dollar.Analysts at CitiFX said they were not sure what triggered the move, with explanations ranging from “fat fingers to algo errors, poor liquidity and an old interview getting re-circulated in a Financial Times article”.Whatever the reason, the yen strength did for an initial tally in the often exporter-sensitive Japanese stock market, leaving the Nikkei 225 up just 0.1 per cent at the close.