People walk through the lobby of the London Stock Exchange in London

Stocks, oil jump as Draghi the dove tames global bears

Stocks and oil, at the forefront of a global market rout since the turn of the year, rebounded strongly on Friday thanks to hints of more monetary policy support by the European Central Bank and bargain-hunting by bruised investors.

World stocks recorded their biggest rise in a month, and Asian stocks had their best day in three months. Oil rallied 6 percent, after gaining 5 percent on Thursday, recovering from 12-year lows to go back above $30 a barrel.

European stocks followed Asia’s lead and Wall Street looked set to open some 1.3 percent higher, according to index futures.

The surge comes a day after ECB President Mario Draghi signaled the central bank would ease policy further at its next meeting, in March, to combat fading growth and disinflation, a message he reiterated at the World Economic Forum in Davos on Friday.

Europe’s main stock indices rose around 3 percent after adding 2 percent on Thursday. Remarkably, given the recent steep declines, some were on track for their best weekly performance in two months.

Investors seized on Draghi’s comments and bet that the Bank of Japan might also ease policy further next week while the Federal Reserve goes slow in raising U.S. rates this year.

“With inflation so low, it would be strange if central banks didn’t do more in the face of such market turmoil and elevated risk factors,” said John Reid, strategist at Deutsche Bank in London.

“It won’t be a major growth stimulant, but any extra liquidity provided will have to go somewhere, so it’s too early to say the central bank era of elevating asset prices is over,” he said.

The FTSEuroFirst 300 index of leading European shares was up 2.9 percent, putting it on track for a weekly gain of around 2.7 percent.

Germany’s DAX was up 2.1 percent, Britain’s FTSE 100 was up 2.4 percent on the day, and France’s CAC 40 was up 3.2 percent.

Earlier this week, all of them had entered “bear market” territory, meaning they were down 20 percent or more from last year’s peaks.

MSCI’s broadest index of Asia-Pacific shares outside Japan rose 2.9 percent on Friday, the most since Oct. 7 last year, after touching a four-year low on Thursday.

That puts the index on track for a 0.2 percent gain for a week in which oil prices plunged and concern over China’s economy pummeled risk assets globally.

Japan’s Nikkei surged 5.9 percent, the most in more than four months. Chinese stocks, which had fallen almost 20 percent since the turn of the year, rose 1.3 percent.


Oil prices extended an overnight rally that began after data showed stockpiles at some U.S. sites rose less than some had expected and as cold U.S. and European weather spurred demand.

That gave traders the incentive to cover record short positions in oil, essentially bets that the price of oil would continue falling. [O/R]

Brent crude futures were up 6.4 percent at $31.13 a barrel, extending its rebound from a 12-year low of $27.10 hit on Wednesday.

U.S. crude futures followed a similar path, rising 5.3 percent to $31.09 from Wednesday’s 12-year low of $26.19.

Other commodities also gained. Three-month copper on the London Metal Exchange rose 1.1 percent to $4,478 a tonne, poised for a 3.3 percent weekly rise, its best week in more than three months. [MET/L]

In currencies, the prospect of looser ECB policy kept the euro under pressure. The single currency was down 0.4 percent at $1.0832.

Currency analysts at Goldman Sachs lowered their euro forecasts late on Thursday, in a note that predicted the currency would fall below parity with the dollar and end the year at $0.95.

“In our view there will be more easing for longer than the market expects,” the analysts wrote. “This is the underlying reason why we think the euro’s downtrend will continue and be large.

“We are keeping our end-2017 forecast unchanged at $0.90 at present, though we see downside risks to that.”

The dollar was up 0.3 percent against the yen at 118.14 yen, pulling away from a one-year trough of 115.97 struck earlier this week against the safe-haven Japanese currency.

U.S. Treasuries prices fell. Benchmark yields rose from 3 1/2-month lows as the rebound in stocks and oil scaled back appetite for low-risk government debt.

The 10-year yield rose 5 basis points to 2.07 percent, and the yield curve – the gap between two- and 10-year yields – steepened from a multi-year low to around 119 basis points.



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