Gapmaker_Collocation

Overview: Oil reversal helps equities rebound

http://www.ft.com/cms/s/0/540314f4-6ed9-11dd-a80a-0000779fd18c.html

Gapmaker Level 8

Overview: Oil reversal helps equities rebound

By Dave Shellock
Published: August 20 2008 18:06 Last updated: August 20 2008 18:06

A sharp turnaround in the oil price helped trigger a rebound for US and European equities and helped push the dollar back towards a recent six-month high against the euro on Wednesday.
Oil saw volatile trading as investors digested the latest US inventories data. Nymex September West Texas Intermediate briefly spiked back above $117 a barrel before easing back to below $113, down nearly $2 on the day.

US crude inventories rose by much more than expected last week although gasoline stockpiles fell far more than expected.

Initial support for crude came as Goldman Sachs reiterated its forecast for WTI to end the year at $149. The investment bank said it expected fundamental factors, rather than the dollar, to provide the key driver of crude prices.

Elsewhere in commodities, gold retreated in-line with oil but managed to hold above the $800 an ounce mark.

The fall in the oil price offered a much-needed boost to US and European equity markets. By midday in New York, the S&P 500 was up 0.4 per cent after sliding some 2.4 per cent over the previous two sessions.

Financial stocks recouped some of their recent losses - despite ongoing worries about Fannie Mae and Freddie Mac, the government sponsored mortgage agencies.

Hewlett-Packard also pushed ahead after the company unveiled strong profits and an encouraging outlook.

The pan-European FTSE Eurofirst 300 index rose 0.5 per cent and the FTSE 100 in London gained 1 per cent, as mining and commodity stocks returned to favour.

It was a more mixed picture in Asia, however. In Tokyo, the Nikkei 225 Average slipped 0.1 per cent but Australian stocks climbed 1.3 per cent and Singaopore gained 0.9 per cent.

The standout performance came from China amid unconfirmed reports that that Beijing would implement an economic stimulus package that would offer support to the market.

The Shanghai composite index leapt 7.6 per cent, while the Hang Seng index in Hong Kong rose 2 per cent.

But Wengsheng Ping, analyst at Barclays Capital, said: “From a macroeconomic point of view, we do not expect a major policy stimulus in the near term following the recent increase of bank credit quotas by the central bank.”

Emerging market equities in general had a strong day as they bounced off Tuesday’s one-year lows. In Russia, the RTS index rose 1.7 per cent Bovespa index gained 1.9 per cent.

On the currency markets, the dollar resumed its upward path - coming within striking distance of a six-month high against the euro and a two-year peak against sterling.

The pound was undermined by the release of the minutes of the Bank of England’s last policy meeting, which revealed a three-way split within the Monetary Policy Committee over the path of UK interest rates.
“The seemingly softer tone to the Committee’s discussion in August, in keeping with a more muted outlook in the [BoE’s Quarterly] Inflation Report, does seem to have pretty much ruled out any prospect of a rate hike - which was already slim - as it would risk an “unnecessarily deep” downturn,” said David Page, economist at Investec Securities.

“However, we still do not believe the Committee will be willing to cut rates at the time of the next Inflation Report in November. At this time, the latest reading on inflation (for September) is likely to be in excess of 5 per cent.”

The 10-year UK Gilt yield fell 5bp to 4.54 per cent as investors digested the more dovish tone of the minutes.

Elsewhere in the government bonds market, US Treasuries moved ahead as persistent concerns about Fannie Mae and Freddie Mac prompted safe-haven buying. The yield on the 10-year note was down 3 basis points at 3.81 per cent while the two-year yield was 2bp lower at 2.28 per cent.

Collocations from this article

A sharp turnaround in
a rebound for US and European equities
a recent six-month high
the latest US inventories data
US crude inventories rose by much more than expected
gasoline stockpiles
fundamental factors
to provide the key driver of crude prices
in commodities
The fall in the oil price
a much-needed boost to US and European equity markets.
the previous two sessions
Financial stocks
an encouraging outlook.
mining and commodity stocks
a more mixed picture in Asia
Beijing would implement
an economic stimulus package
a major policy stimulus in
Emerging market equities in general
On the currency markets,
The seemingly softer tone to the Committee’s discussion in August
the government bonds market