Thursday 27 October 2016

Shares reach four-month high, oil producers meeting

Published 14/04/2016 | 10:17

Traders work at their desks in front of the German share price index, DAX board, at the stock exchange in Frankfurt
Traders work at their desks in front of the German share price index, DAX board, at the stock exchange in Frankfurt

World stocks rose to their highest level in more than four months on Thursday and the dollar had a third day of gains as markets took a positive view ahead of top policymaker and oil producer meetings.

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Singapore set the tone for the IMF's spring meeting as its normally conservative central bank unexpectedly eased policy, while Europe was watching a meeting of the Bank of England as sterling GBP=D4 continued to suffer worries over June's vote on EU membership.

Oil prices fell again as OPEC warned of slowing demand and as Russia hinted that there might only be a loose agreement on output levels at a exporter meeting in Doha at the weekend.


The fall came as the dollar, which most commodities are priced in, flexed its muscles again having just chalked up its biggest one-day gain in over a month.

It was at $1.1246 per euro EUR=, way above a six-month low of $1.1465 touched on Tuesday and up 0.1 percent on the yen to 109.42 yen JPY=, well away from Monday's 17-month trough of 107.63 yen.

"The dollar has been doing well over recent days particularly against Asian currencies today after the MAS (Singapore central bank) eased policy," said Societe Generale FX strategist Alvin Tan.

"We have the IMF meetings coming and we also have the Doha meeting which actually for the markets could be more important considering how bulled up the oil market has been recently."

European shares .FTEU3 had a subdued first couple of hours as traders cashed in after a 2.6 percent jump on Wednesday and as miners .SXPP fell on lower oil prices. LCOc1

Big gains in Asia overnight, however, meant MSCI's 46-country All World stocks index was up a fifth straight day to its highest since mid-December. Asian shares have surged 5 percent since Friday.


The main action came in Singapore as its central bank set the rate of appreciation of the Singapore dollar policy band at zero after data previously showed economic growth stalled in the first quarter.

It sparked the biggest drop for the Singapore dollar <SGD=D3 in eight months and triggered a downdraft in other Asian currencies. The Korean won KRW=KFTC fell just as much as the SGD as it sank 1 percent against the greenback.

"It's very interesting, and eye-catching, that the MAS has gone back to post-global financial crisis settings, and sends a strong message about the weak external environment," said Sean Callow, senior currency strategist at Westpac in Sydney.

"As one of the world's most trade-sensitive economies, Singapore's concern over a 'less favourable external environment' should be noted by the likes" of South Korea, Australia and New Zealand, Callow added.

Notwithstanding the optimistic trade data out of China on Wednesday, Singapore's policy decision is yet another reminder of the headwinds facing the global economy.

Earlier this week, the IMF cut its global growth forecast for the fourth time in the past year, citing a bunch of factors including chronic weakness in advanced economies.

Risk appetite remained robust with an index of high yield debt (HYG) settling at its highest levels since early December.

In the government bond markets, yields swung lower with the yield on the 30-year Japanese government bond JP30YT=RR briefly falling a record low of 0.385 percent. U.S. debt followed with yields on ten-year notes slipping to 1.75 percent.

The yield curve, measuring the gap between the 10-year notes and the two-year bills and an indicator of interest rate expectations, flattened to 100 basis points, signalling a benign rate view.

Benchmark German Bund yields tick down again in Europe too as the euro EUR= extend its weakness after falling 1 percent on Wednesday, its biggest fall in 5 months.

Oil markets saw more choppy trading. Prices fell after Reuters reported that Russian oil minister Alexander Novak told a closed-door briefing that a deal on an oil output freeze scheduled to be signed this month in Doha will be loosely framed with few detailed commitments.


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