European shares hit three-month highs on Tuesday following gains on Asian bourses as a rise in oil prices, partly due to a workers’ strike in Kuwait, boosting investors’ appetite to take on risk.
Oil prices had already shrugged off the weekend failure of producers to agree to freeze output at a meeting in Doha, but Tuesday’s gains drove the commodity-linked Australian dollar to a 10-month high against its U.S. counterpart.
Brent crude, the international benchmark, last traded at $43.27 per barrel, up nearly 40 cents. Kuwaiti output fell to 1.1 million barrels a day on Sunday from 2.8 million bpd in March due to the strike, although analysts expect the impact to be brief.
“It is quite amazing how oil prices have recovered from Monday’s lows. That is shoring up risk appetite and pushing up commodity-linked currencies,” said Niels Christensen, FX strategist at Nordea. “As long as oil remains above $43 a barrel we think commodity currencies will remain supported.”
Oil’s rise from lows around $27 touched in February, along with signs of an improving U.S. economy and the U.S. Federal Reserve’s cautious approach to raising interest rates, have helped lift stocks on Wall Street and elsewhere in recent weeks.
The pan-European FTSEurofirst 300 share index rose 1.3 percent, led higher by gains in basic resources stocks, oil and gas and travel and leisure.
The FTSEurofirst is up 14 percent from February lows.
Britain’s FTSE 100 added 0.5 percent.
MSCI’s broadest index of Asia-Pacific shares outside Japan was up 1 percent, after touching its highest intraday levels since November.
Tokyo’s Nikkei gained 3.7 percent, Australian shares hit their highest since early 2016 while New Zealand shares hit a new record high.
In China, both the CSI 300 and the Shanghai Composite indexes closed 0.3 percent higher.
Emerging market stocks measured by MSCI rose 0.7 percent and EM currencies broadly gained. Oil exporter Russia’s rouble gained 1 percent to 65.50 per dollar.
The Australian dollar rose 0.5 percent to $0.7782, having earlier hit its strongest since June at $0.7803. The Canadian dollar hit its highest since July.
The U.S. dollar edged 0.1 percent lower against a basket of currencies. The euro was up 0.1 percent to $1.1328 but the safe-haven yen, which last week hit 17-month highs around 107.61 per dollar, fell 0.3 percent to 109.14.
Assurances from Fed Chair Janet Yellen that the central bank would be cautious in raising rates have held the dollar in check lately. The Fed meets next week and while no move is expected, investors will be on the look-out for signs of a hike in June.
European Central Bank policymakers meet on Thursday.
Government bond yields rose with stocks. In the euro zone, Italian yields rose before a hefty auction and Spanish 10-year yields rose 3 basis points to 1.53 percent after political parties’ latest failure to form a government since an inconclusive election in December.
“It looks like the (Italy) announcement came as a surprise … and now the market is preparing for that supply,” Mizuho strategist Peter Chatwell said. “We’ve also got all of these political factors building up … and the sentiment is going to be towards spreads widening from here.”
Copper prices, which have benefited from signs of economic recovery in China in recent weeks, dipped 0.4 percent to $4,809 a tonne.
Gold rose as the dollar weakened. It last traded at around $1,242 an ounce.