Stocks across Europe surged on Friday, setting up what could be a surprise positive return for the week. Markets have seen a dramatic shift in sentiment in the space of a few days. The stabilisation began mid-week when oil prices rebounded from 12-year lows but strong hints of further monetary stimulus from the ECB has kicked off a full-on relief rally.
Oil prices have jumped to a five-day high back above $30 per barrel and, should gains be preserved, have the best week in three months. There hasn’t been a real fundamental catalyst for the rebound in oil; US weekly inventories actually saw a bigger build than expected. You could call it the “IEA low” after the agency made its untimely comment that the oil market would drown in oversupply.
The rally in stocks is more about the oil price than hopes of stimulus from the ECB. That puts it on shaky ground. If it was Mario Draghi’s promise of “no limit” to ECB money-printing that caused today’s rally in equities, then the euro should have dropped too. In fact, despite weaker than expected services and manufacturing PMI readings for January, the euro is still above 1.08 to the dollar. Draghi’s reputation for delivering what the market wants was damaged in December so if oil prices resume their decline, the rally in stocks could end as quickly as it started.
The general return to risk-on sentiment which saw the Japanese benchmark equity index the Nikkei gain over 5% has flowed into the FTSE 100 where every sector is higher on the day. The rebound in oil prices has seen the oil & gas sector lead the gains while a disappointing December UK retail sales report saw the consumer goods sector underperform.
US stocks look set for a positive start in line with a global shift into risky assets amidst the higher oil price.
USA pre-opening levels
S&P 500: 22 points higher at 1,890
Dow Jones: 163 points higher at 16,045
Nasdaq 100: 56 points higher at 4,198
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