Stocks soar as Draghi the dove tames global bears

The Pak Banker - - MARKETS/SPORTS -

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 from bruised in­vestors. World stocks recorded their big­gest rise in a month and Asian stocks their best day in three months. Oil ral­lied around 5 per­cent for the se­cond day in a row, re­cov­er­ing from 12-year lows to above $30 a bar­rel.

The surge comes a day af­ter ECB Pres­i­dent Mario Draghi sig­nalled 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.

Euro­pean stocks fol­lowed Asia's lead. The re­gion's main indices rose around 2 per­cent for the se­cond con­sec­u­tive day. 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 and that the Fed­eral Re­serve will go 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.

In early trade on Fri­day the FTSEuroFirst 300 in­dex of lead­ing Euro­pean shares was up 2.2 per­cent .FTEU3, putting it on track for a weekly gain of around 2 per­cent.

Ger­many's DAX . GDAXI was up 2 per­cent and headed for a weekly rise of 2.2 per­cent. Bri­tain's FTSE 100 .FTSE was up 1.8 per­cent on the day and France's CAC 40 .FCHI was up 2.5 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 .MIAPJ0000PUS rose 2.4 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 pum­melled risk as­sets glob­ally.

Ja­pan's Nikkei .N225 surged 5.9 per­cent at the close, the most in more than four months. Chi­nese stocks .SSEC, 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 con- tinue fall­ing. In early Lon­don trade, Brent crude fu­tures were up 5.3 per­cent at $30.80 a bar­rel LCOc1, ex­tend­ing its re­bound from a 12-year low of $27.10 hit on Wed­nes­day.

U.S. crude fu­tures fol­lowed a sim­i­lar path, ris­ing 4.5 per­cent to $30.80 as well CLc1 from Wed­nes­day's 12-year low of $26.19. Other com­modi­ties also gained. Three-month cop­per on the Lon­don Metal Ex­change CMCU3 rose 0.4 per­cent to $4,450 a tonne, poised for a 2.7 per­cent weekly rise, its best week in more than three months.

In cur­ren­cies, the prospect of looser ECB pol­icy kept the euro un­der pres­sure. The sin­gle cur­rency was down 0.4 per­cent at $1.0832 EUR=. Cur­rency an­a­lysts at Gold­man Sachs low­ered their euro fore- casts 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 118.03 yen JPY=, 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.

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