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Categorized | Currencies

Stocks closing week on firmer footing

Posted on March 28, 2014

Friday 08:15 GMT. Markets are ending the week in a generally upbeat mood with global stocks gaining for a fourth day in a row and industrial commodities attracting buyers.

Optimism over the US and China’s economies, coupled with waning concerns surrounding the Crimea crisis, are helping underpin sentiment. Hopes that the European Central Bank may take action to stimulate the eurozone may also be providing support to risk appetite.

    The FTSE All-World equity index is adding 0.3 per cent, recovering from a dip on Monday to advance 1 per cent over the subsequent sessions. On Friday, the FTSE Eurofirst 300 is up 0.5 per cent after its Asia-Pacific peer rose 0.8 per cent.

    US index futures suggest the S&P 500 will add 3 points to 1,852 when the opening bell rings later in the day, partially recovering from a second successive decline on Thursday that left the benchmark 1.5 per cent below its record high of 1,878 hit on March 7.

    Wall Street, which usually sets the tone for global developed markets, has been struggling to make further headway of late, the S&P 500 trapped within a roughly 40 point range for the past five weeks.

    Short-term US borrowing costs are moving higher as investors contemplate an improving economy, encouraging the Federal Reserve next year to raise interest rates for the first time since the financial crisis began seven years ago.

    Two-year Treasury yields have trundled up to 0.45 per cent in response, a move that contrasts with the trend in Europe, where equivalent duration Bunds are yielding just 0.13 per cent.

    That leaves the US/German 2-year yield spread at 32 basis points, its widest in more than two years, with additional pressure on European yields coming from talk that the ECB is considering introducing quantitative easing in order to boost the bloc’s economy. News of Spanish deflation may make ECB action more likely.

    Such chatter of more central bank largesse may be beneficial for risk assets, but it has just recently been putting pressure on the euro, which on Friday is down another 0.2 per cent to a three-week low of $1.3712.

    It had been thought that as US borrowing costs moved higher, emerging market assets would slump further on worries developing economies would find it harder to attract funds.

    But investors have not become more risk averse. On the contrary, the FTSE Emerging Market index is up another 0.7 per cent on Friday, a sixth consecutive session of gains that has seen the gauge advance 4.3 per cent.

    The Indian stockmarket’s move to record highs, on hopes for a more business-friendly government, has helped the EM mood. As has a partial rebound for Russian equities as investors bet that the spat between the international community and Russia over Crimea will not intensify. Moscow’s Micex index is up 0.6 per cent, though it should be noted the rouble and the country’s bonds are softer on the day.

    But EM assets are also highly sensitive to perceptions of China’s economic prospects, so they will have welcomed comments this week from premier Li Keqiang that Beijing is ready to take measures to support the cooling economy.

    Hong Kong’s Hang Seng index rose 1 per cent, putting it on track for a weekly advance of nearly 3 per cent. Shares of companies based in China have led gains, moving up more than 6 per cent this week on hopes of a stimulus from Beijing.

    The Shanghai Composite eased back 0.2 per cent on Friday, but China-sensitive industrial commodities were more chipper, with copper leading broad gains for the metals, up 0.8 per cent to $6,617 a tonne.

    In Tokyo, investors were looking past less than optimistic data on retail sales and household spending. The Nikkei 225 rose 0.5 per cent, and has gained 3 per cent this week.

    Japanese retail sales climbed 3.6 per cent from a year ago in February, down from January’s 4.4 per cent rise, indicating a slowing in consumers’ rush to make big purchases ahead of a rise in the sales tax on April 1.

    “Unfavourable snow conditions in the middle of the month look primarily responsible for weak consumer spending on clothing and eating out,” wrote analysts at Credit Suisse.

    In currencies, the Australian dollar was trekking toward the US$0.93 barrier, climbing 0.1 per cent – a sixth straight daily gain – to US$0.9266.

    Since late January, the Aussie has gained about 7 per cent and “looks unlikely to slow down”, noted Evan Lucas, IG strategist, as the country’s central bank governor is no longer talking down the currency.

    Gold is up $5 to $1,296 an ounce

    Additional reporting by Patrick McGee in Hong Kong