Japanese stocks led Asian markets higher on Friday, after Wall Street boasted its biggest two-day advance since late 2011 amid relief the Federal Reserve was in no rush to start hiking the interest rates.
The gains came even as oil stayed under pressure, suggesting equity investors were beginning to see the positives in lower fuel costs and increased consumer spending power.
Brent had ended Thursday $1.37 lighter at $59.81 a barrel, while US crude was hovering around $54.88 after losing more than $2.
In Asia, Japan’s Nikkei climbed 1.9 per cent to erase much of its recent losses, while Australia’s main index added 1.4 per cent. MSCI’s broadest index of Asia-Pacific shares outside Japan put on 0.6 per cent.
“Risk sentiment is ending the week on a stronger footing after a poor start,’’ said analysts at Barclays. “Market expectations for ECB QE add to the Fed’s upbeat message on US growth and stabilisation in Russia.’’
Dealers noted that Friday was quadruple witching day, where market index futures and options, stock options and stock futures expire, often leading to heightened volatility.
Bank of Japan policy meet
The Bank of Japan also holds a policy meeting Friday and is certain to stay committed to its massive stimulus campaign, printing yen to buy truck loads of government bonds.
BoJ Governor Haruhiko Kuroda will likely repeat calls for firms to increase wages at his post-meeting news conference, as well as urge Prime Minister Shinzo Abe to press ahead with fiscal and structural reforms.
On Wall Street, investors were still celebrating the Fed’s pledge to be patient in withdrawing stimulus. The Dow surged 2.43 per cent, while the S&P 500 gained 2.4 per cent and Nasdaq 2.24 per cent.
That was the biggest daily rise for the S&P since January 2013 and left it up 4.5 per cent in just two sessions.
The technology sector jumped 3 per cent as Oracle Corp romped 10.2 per cent higher a day after quarterly results topped Wall Street expectations.
Going negative
In currencies, the main mover was the Swiss franc which slid after Switzerland’s central bank surprised by imposing negative interest rates on deposits, essentially charging banks for parking their francs at the SNB.
A higher franc would aggravate the country’s deflation problem, so the SNB hopes to stem a flight to the safe-haven currency driven by concern over the euro zone and Russia’s deepening crisis.
The franc duly slid to its lowest against the US dollar since May 2013 at 0.9847 francs. However, losses against the euro were much more modest in part because the European Central Bank is widely expected to ease again soon.
Indeed, analysts were quick to note that the SNB’s negative rates take effect on January 22, the date of the ECB’s next meeting, which only fuelled speculation the ECB will finally launch all-out quantitative stimulus by buying government debt.
Euro vs dollar
That was one reason the euro resumed its decline against the US dollar, dropping to $1.2280 and a long way from the week’s peak of $1.2569. That was uncomfortably close to its December trough of $1.2245, and a break there would take it to territory not visited since late 2012.
With the ECB set to ease and the Fed contemplating tightening, yields have moved decisively in favour of the dollar. The premium that two-year Treasuries pay over bunds has widened to 71 basis points, its biggest since early 2007.
Yields on US 10-year paper rose back to 2.22 percent, having been as low as 2.00 percent early in the week.