Wednesday 21.15 GMT. Oil prices are still dominating traders’ psyche, pressuring equities on fears an energy supply shock could harm the economic recovery, while gold has hit a new high and the Swiss franc is at a record high against the dollar as investors seek protection from strife.
Ben Bernanke, Federal Reserve chairman, continued to stoke energy prices when his comments to US lawmakers raised hopes that further stimulus could still be in the works. Mr Bernanke said on Wednesday that there remained “a decision” to be taken on a third round of quantitative easing. “I want to be sure that you understand that I am very attentive to inflation and potential risks for inflation,” he told Congress.
Crude prices hit new highs for the session after the Fed chairman spoke, with US WTI oil hitting $102, a jump of 2.5 per cent. Brent crude hit $117, a rise of 1.5 per cent.
Mr Bernanke on Tuesday had added credibility to fears over oil prices when he said they represented “a threat both to economic growth and to overall price stability”. In other words, stagflation: the stock market’s kryptonite.
Meanwhile, the FTSE All-World index is down 0.1 per cent and non-energy commodities are generally weaker as unrest in Libya and other countries in the oil-rich region showed little sign of abating.
Saudi Arabia’s stock market fell another 4 per cent, while the cost of insuring the kingdom’s sovereign debt against default, one of traders’ favourite risk gauges, rose 9 basis points to 145 basis points, according to Markit.
The S&P 500 on Wall Street rose 0.2 per cent, following the previous session’s 1.6 per cent slide, helped by a stronger-than-expected gain in the ADP private-sector February employment report, and a Beige Book from the Fed, a collection of anecdotal economic reports, that described improving labour fundamentals.
US Treasuries also saw losses following those improvements in the economic outlook, and despite Mr Bernanke’s comments, suggesting that traders believe inflation will still outpace any impact from the Fed’s purchases of bonds.
Sentiment appears to be levelling off after taking a sharp knock since the S&P 500 touched its 32-month high of 1,343 just seven sessions ago. It looks like global stocks are absorbing the Mideast tremors, with fund managers now focusing on the improving global economic fundamentals – as borne out by Tuesday and Wednesday’s upbeat economic surveys.
Trading Post
They are neighbours, but in currency terms they are worlds apart, writes Jamie Chisholm. The Canadian dollar hit a three-year high against its US peer on Tuesday, having decisively broken through what looked to be resistance around the C$0.98 level.
The reasons for the loonie’s strength are well known: Canada’s heavyweight resources sector teams the currency with other pro-cyclical units such as the Aussie; the country’s financial system suffered less trauma than most from the credit crisis; and the first two factors combined have left the Canadian economy in relatively rude health.
The central bank held steady on Tuesday but is expected to resume its tightening cycle fairly soon, boosting the loonie’s yield attractions. But there are two sides to a currency cross, and the question for traders is: what happens if the market starts to take more of a shine to the greenback? ADP private-sector jobs data today is a taster for Friday’s non-farm payrolls report. The US unit could see support if traders are wrongfooted by much stronger-than-forecast US labour market surveys.
Speculative positions in the CME currency futures complex show net long loonie positions look stretched.
Europe – Bourses opened lower, pressured by Wall Street finishing overnight at session lows and a rotten performance out of Asia. The FTSE Eurofirst index fell 0.6 per cent and London’s FTSE 100 lost 0.4 per cent. The mining sector, though weaker, was able to pare much of an initial 2 per cent decline, which came on worries resource demand could falter if an oil price shock crimps global activity.
Commodities – The US-based Nymex crude contract pushed above $100 a barrel in overnight electronic trading and is now up 2.7 per cent at $102.33, helped along after Muammer Gaddafi appeared in typically belligerent form during a TV address. The more representative Brent contract is up 0.8 per cent to $116.39.
Gold is up 0.2 per cent at $1,435 an ounce, shy of the fresh record intraday high of $1,439, while silver has hit a fresh 31-year peak of $34.91 an ounce and is now trading at $34.85.
Industrial metals are generally weaker, though copper is flat at $4.49 a pound.
Forex – The dollar has weakened as the European session progressed, with the ADP figures providing little help. The euro is up 0.6 per cent at $1.3866, a four-month high, ahead of the European Central Bank’s monetary policy decision on Thursday. The dollar index is at four-month lows, down 0.5 per cent to 76.68. Haven flows have pushed the Swiss franc to a new high versus the buck, up 0.5 per cent to SFr0.9244.
Rates – US Treasury benchmarks are softer, pushing 10-year yields off four-week lows, up 8 basis points to 3.47 per cent.
UK bonds are outperforming as gilts continue to price in lower growth. The 10-year yield is up 1 per cent at 3.72 per cent, taking the spread with equivalent Bunds to a 16-month low around 50 basis points.
Asia-Pacific – Stocks were sharply lower on renewed concerns that higher oil prices could choke off the global economic recovery, with airlines bearing the brunt of crude oil’s surge to more than $100 a barrel.
The FTSE Asia Pacific index dropped 1.2 per cent with Japan’s Nikkei 225 down a hefty 2.4 per cent on futures-led selling. South Korea’s Kospi index lost 0.6 per cent, with foreign investors net sellers for the sixth consecutive session.
In Shanghai, property developers remained under pressure from fears of higher inflation and the monetary response. The Composite index dipped 0.2 per cent. The Hang Seng in Hong Kong traded more in line with the global trend, shedding 1.5 per cent.
Reporting by Jamie Chisholm in London, Telis Demos in New York and Song Jung-a in Seoul
