Global central banks’ support lifts some of market gloom

Oil prices push back above $30 a barrel and US stocks head for first weekly gain of 2016

President of the European Central Bank Mario Draghi:  many viewed  his comments  on Thursday as  signalling  further stimulus measures could be unveiled in March. Photograph: Fabrice Coffrini/AFP/Getty Images

President of the European Central Bank Mario Draghi: many viewed his comments on Thursday as signalling further stimulus measures could be unveiled in March. Photograph: Fabrice Coffrini/AFP/Getty Images

 

The prospect of further support from the world’s central banks helped lift some of the gloom in global markets , with oil prices pushing back above $30 a barrel and US stocks heading towards their first weekly gain of 2016.

But the improvement in risk appetite only came after a number of benchmark stock indices slid into “bear market” territory — defined as a drop of 20 per cent from cyclical highs — and oil hit levels not seen for more than 12 years.

A clear trigger for the turnround in sentiment came from very dovish comments on Thursday from Mario Draghi, president of the European Central Bank, which many in the markets viewed as signalling further that further stimulus measures could be unveiled in March.

“Although the [ECB POLICY]meeting is seven weeks away, could Thursday have marked the start of another plate-spinning cycle from the central banks?” asked Jim Reid, macro strategist at Deutsche Bank.

“The market chatter is now looking towards [Bank of Japan governor] Kuroda to signal more action when the BoJ meet this time next week. Will [Federal Reserve chairwoman] Yellen also signal a more cautious and dovish stance at the Fed’s Open Market Committee meeting next Wednesday?”

Analysts at Nomura said that while Fed tightening expectations had diminished considerably, a move in June was still their base case.

On Friday, the prospect of further central bank moved appeared to unleash a burst of pent-up buying enthusiasm.

By midday in New York, the S&P 500 was up 1.5 per cent at 1,897 — off an earlier peak of 1,906.90, but up 0.9 per cent on the week. The move trimmed the year-to-date drop for the equity benchmark to 7.2 per cent.

The pan-European Stoxx 600 rose 3 per cent, and was 2.6 per cent higher over the five-day period. The Nikkei 225 in Tokyo leapt 5.9 per cent on Friday, its best one-day showing in four months — but was still down 1 per cent on the week. In Dublin the ISEQ index closed at 6356, up 1.6 per cent on the day and fractionally up on its closing level one week earlier, after a number of volatile sessions.

The rally for global stocks came as Brent oil reached $31.50 a barrel — up 7.7 per cent on the day, and 16 per cent up from a 12-year low of $27.10 hit on Wednesday. For the week, Brent was 8.9 per cent higher.

US West Texas Intermediate crude swung through a similar trajectory.