Global equities boosted by oil gains; dollar climbs versus yen

Gold drops to 7-week low on Fed rate hike prospect

NEW YORK, May 25, (Agencies): Oil prices rose on Wednesday after a sharper-than-expected fall in inventories and gains in energy shares lifted world stock markets.

Growing bets of a possible Federal Reserve rate increase as in June or July reduced demand for US government debt while keeping the dollar near its highest level against the euro in roughly 10 weeks.

Comments from policymakers in recent days and upbeat US economic data have raised expectations of a rate hike in June, much sooner than previously thought.

“Investors have started to seriously contemplate the prospect of a hike at the start of the summer,” said Luke Bartholomew, global macro investment manager at Aberdeen in London.

Energy Information Administration data showed US crude stockpiles fell last week as imports dropped and refineries cut output. Brent oil was up 45 cents at $49.06, while US crude was up 26 cents at $48.88.

Energy shares helped to boost global stock indexes, with shares of Chevron up 1.1 percent at $101.28.

The Dow Jones industrial average was up 153.64 points, or 0.87 percent, to 17,859.69, the S&P 500 had gained 14.61 points, or 0.7 percent, to 2,090.67 and the Nasdaq Composite had added 30.01 points, or 0.62 percent, to 4,891.07.

MSCI’s all-country world stock index rose 1 percent, while the pan-European FTS Euro first 300 index of leading regional stocks was up 1.5 percent.

A new debt deal for Greece seemed have headed off the risk of another round of uncertainty over its finances and even its future in the euro zone after a funding crisis a year ago.

The US dollar rose against the yen for a second straight day and hovered near its highest level in roughly 10 weeks against the euro.

The euro was last down 0.04 percent against the dollar at $1.1144.

Gold dropped to a seven-week low amid the Fed expectations. Spot gold was last down 0.5 percent at $1,220.41 an ounce.

US

Wall Street was higher in afternoon trading on Wednesday, extending gains from Tuesday as oil prices rose and investors became more comfortable with the prospect of an interest rate hike as early as next month.

The S&P financial index was up 0.95 percent, after hitting its highest this year in morning trading. Bank of America, JPMorgan and Citigroup were up between 1.5 and 2 percent.

Comments from policymakers in recent days and upbeat US economic data have raised expectations that the Federal Reserve could pull the trigger on a rate increase much sooner than previously thought.

Traders are now pricing in a 38 percent chance for a rate hike in June and 45 percent in July, according to CME Group’s FedWatch tool.

The Fed last raised its key interest rate in December by quarter of a percentage point to between 0.25 and 0.5 percent.

“Wall Street is getting a little bit more comfortable with a hike and knowing that the sun will rise even after the Fed hikes rates,” said Paul Nolte, portfolio manager at Kingsview Asset Management in Chicago.

“The recent economic data suggests that the economy is better, but continues to be uneven.”

Energy shares rose as oil prices hovered near $50 a barrel for the first time in seven months on expectations of shrinking supply. Chevron was up 1.21 percent.

At 13:15 p.m. ET (1715 GMT) the Dow Jones industrial average was up 163.74 points, or 0.92 percent, at 17,869.79, the S&P 500 index was up 16.89 points, or 0.81 percent, at 2,092.95 and the Nasdaq composite index was up 42.03 points, or 0.86 percent, at 4,903.08.

The gains were broad-based, with nine of the 10 major S&P sectors trading higher.

The S&P 500, which has risen about 15 percent since its February lows, is up about 2 percent for the year.

Shares of Computer Sciences soared 34.5 percent to $47.90 after Hewlett Packard Enterprise said it would spin off and merge its struggling IT services business with the company. Hewlett Packard Enterprise was up 9.1 percent at $17.73.

Alibaba Group was down 4.7 percent at $77.34 after the company said it was being investigated by the US Securities and Exchange Commission over whether its accounting practices violated any federal laws. Yahoo, in which Alibaba own a stake, was down 2.8 percent at $36.49.

Advancing issues outnumbered decliners on the NYSE by 2,047 to 895. On the Nasdaq, 1,852 issues rose and 891 fell.

The S&P 500 index showed 34 new 52week highs and no new lows, while the Nasdaq recorded 84 new highs and 15 new lows.

Europe

European equities jumped to a fourweek high on Wednesday with banks buoyed by progress on talks towards securing a debt relief deal for Greece, and energy shares rose on the back of a rally in oil.

The FTS Euro first 300 and the STOXX Europe 600 index both touched their highest levels since late April, climbing 1.4 percent to add to the previous session’s jump of more than 2 percent.

Banks rose after euro zone finance ministers agreed with Greece and the International Monetary Fund on a deal that will address Athens’ requests for debt relief.

“This deal is welcome, and it allows the current arrangement to progress. In a way it puts a lid back on the can of worms, but the worms are still in there,” Jasper Lawler, market analyst at CMC Markets, said.

The euro zone banking index was up 3.4 percent, led by lenders in the periphery. Shares in Caixabank, Banco Popular and Santander surged between 5.8 percent and 7.3 percent.

Deutsche Bank gained 4.1 percent, with some traders citing positive broker comments from JP Morgan.

The top Greek index rallied in early deals as sovereign yields fell on the deal. It had been set to post its highest close since December 2015, until a late pullback saw it provisionally end flat.

Asia

Asian stocks jumped Wednesday after a strong lead from Wall Street and Europe, and as investors adjusted to the prospect of a US rate rise in the near future.

Energy stocks soared in Hong Kong and Sydney as oil prices rebounded, while in Tokyo exporters were lifted by a weaker yen which is a plus for their profitability.

The gains in Asia followed a jump in European markets Tuesday as Brexit fears eased after opinion polls suggested Britain would vote to remain in the European Union next month.

Hong Kong added 2.7 percent by the close, while Taipei, Manila and Jakarta were all up more than one percent and Singapore advanced about 0.9 percent.

Sydney was lifted 1.5 percent and Seoul 1.2 percent, but Shanghai flitted in and out of positive territory to close 0.23 percent lower.

Tokyo ended up 1.6 percent as the dollar advanced against the Japanese currency. A weaker yen inflates the value of exporters’ overseas profits.

The greenback was at 110.27, up from 109.99 yen in New York and 109.22 yen in Tokyo Tuesday on mounting expectations of a US interest rate increase.

Energy stocks were among the best performers regionally, as oil prices edged towards $50 a barrel in Asia after a largerthan-expected dip in US stockpiles resulting from wildfires in Canada.

Hong Kong-listed China Shenhua Energy soared 6.1 percent, CNOOC advanced 3.6 percent and Petro China was up 3.9 percent. In Sydney, Worley Parsons closed 7.6 percent higher and Santos gained 2.6 percent, while in Tokyo, explorer Inpex gained 1.1 percent.

Also in Tokyo, automaker Toyota climbed 2.3 percent following overnight news of a partnership with ridesharing titan Uber, and consumer electronics giant Sony increased more than six percent after investors shrugged off a weak profit forecast.

Elsewhere, eurozone finance ministers reached a vital deal with Greece on Wednesday to start debt relief as demanded by the International Monetary Fund, and to unlock 10.3 billion euros ($12 billion) in bailout cash.

In early European trade London climbed 0.6 percent, Paris added 0.6 percent and Frankfurt put on 0.9 percent. Key figures around 0830 GMT Tokyo: Nikkei 225: Up 1.6 percent at 16,757.35 (close)

Shanghai — Composite: Down 0.23 percent at 2,815.09 (close)

Hong Kong — Hang Seng: Up 2.7 percent

at 20,368.05 (close)

Oil

Oil rose towards $50 a barrel on Wednesday for the first time in seven months, driven by expectations that shrinking supply will help erode any overhang of unwanted crude, particularly after industry data showed a sharp fall in US inventories.

A series of outages around the world, such as wildfires in Canada and a spate of violence in Nigeria’s oil-producing region, has helped cut global oil supply by nearly 4 million barrels per day this month.

Although these hitches are temporary, they have contributed to a drop in the supply glut that has plagued the market for nearly two years.

Brent crude futures were up 59 cents at $49.20 a barrel by 1128 GMT, while US crude futures rose 52 cents to $49.14 a barrel.

“We are definitely moving out of this surplus situation that we’ve been living in since mid-2014. There will still be some time, maybe six months of surplus, but then we’re basically into rebalancing,” SEB head commodities strategist Bjarne Schieldrop said.

“There have been losses in equities and especially emerging markets (this month) and still oil is up, so it’s definitely about oil fundamentals, rather than tailwinds from equities and currencies,” he said.

Gold

Gold fell to a seven-week low on Wednesday after upbeat US home sales data in the previous session boosted expectations that the Federal Reserve will press ahead with interest rate hikes in the near term.

The metal has fallen more than 4 percent since Fed meeting minutes last Wednesday revived expectations of an imminent rate increase. Gold is sensitive to rising interest rates, which increase the opportunity cost of holding non-yielding assets.

Spot gold was down 0.5 percent at $1,220.41 an ounce at 1415 GMT, off an earlier low of $1,217.25. US gold futures for June delivery were down $8.20 at $1,221.00.

“The economic data is firming up in the US and this is making the dollar stronger,” Naeem Aslam, chief market analyst at Think Forex, said. “Traders are of the mind-set that the Fed will increase the interest rate in June.”

The dollar hit a two-month high against a basket of currencies on Wednesday on expectations the Fed will raise rates in the near term, though it gave up gains against the euro on relief that there was progress in Greek bailout talks.

Growing confidence in a pick-up in US economic growth was fed on Tuesday by data suggesting new US single-family home sales have hit their highest in eight years.

Holdings in the world’s largest goldbacked exchange-traded fund, SPDR Gold Shares, fell 3.9 tonnes on Tuesday to 868.66 tonnes, its first decline in a month.