Global stocks rally as rate fears abate

A trader on the floor of the New York Stock Exchange. PHOTO: AFP

A trader on the floor of the New York Stock Exchange. PHOTO: AFP

An index of global stocks, yesterday, charged to its highest point since the start of the year, while the dollar weakened, as easing concerns about rising interest rates led investors into riskier assets.

Oil prices climbed, as commodities denominated in dollars became more attractive to users of other currencies. U.S. Treasury prices fell with benchmark yields rising from four-week lows amid selling in safe-haven bonds.

Federal Reserve Chair, Janet Yellen said on Tuesday the U.S. central bank should proceed cautiously as it looks to raise interest rates, pushing back on a handful of her colleagues who have suggested another move may be just around the corner.

Yellen’s comments were echoed on yesterday by Chicago Fed President Charles Evans, who said there was a high hurdle to raising rates in April, given low inflation.

“You have got the follow through from the Fed. They are taking one of the fears basically off the table at this point in terms of rising interest rates,” said Chuck Carlson, chief executive officer at Horizon Investment Services in Hammond, Indiana.

“The market has been basically kind of moving almost in tandem with what has been happening with the dollar. That trade got reinforced yesterday.”

The pan-European FTSEurofirst 300 index advanced 1.3 per cent.

MSCI’s index of world shares gained 1.4 per cent, putting it into positive territory for 2016.

The dollar had hit its highest level in about two weeks against a basket of major currencies .DXY at the start of the week, boosted by a series of hawkish comments from Fed officials. But the greenback receded after Yellen’s comments, which pointed to global risks to the U.S economy.

The dollar fell another 0.4 per cent on yesterday. It is down about four per cent this year and on track to post its biggest quarterly percentage decline in five years. The euro EUR= rose 0.5 per cent against the dollar.

“Yellen seemed very biased towards the dovish side, and the market is taking that as a signal that the Fed is maybe trying to engineer a weaker currency or a more buoyant financial market, or possibly both,” Altana Hard Currency Fund manager Ian Gunner said in London.

U.S. private employers added 200,000 jobs in March, above economists’ expectations, a report by a payrolls processor showed.

Benchmark 10-year Treasury notes US10YT=RR were down 10/32 in price for a yield of 1.847 percent, up 3.5 basis points from late on Tuesday. The 10-year yield hit a four-week low of 1.800 per cent on Tuesday.

U.S. crude prices rose 1.1 per cent to $38.71 a barrel while benchmark Brent LCOc1 climbed 1.3 per cent to $39.63 a barrel.

“This year’s unusually strong correlation between the stock market and energy futures has been largely inspired by the common support of low to negative rates,” said Jim Ritterbusch of Chicago-based energy markets consultancy Ritterbusch & Associates.

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