Stocks rebound as investors look to end bruising week on a high

Stocks and bond yields rebounded on Friday but were still firmly on track to end lower over the course of a bruising and volatile week marked by the Japanese yen’s surge against the dollar.

Europe’s FTSEurofirst 300 was up 0.7 per cent in early trading, lifted by energy shares thanks to a sharp rise in crude oil prices, but will likely notch up its fourth straight weekly decline.

That would be its longest losing streak since October 2014.

The dollar was also 0.7 per cent higher against the yen at 109.00 yen, recovering from its first break below 108.00 since October 2014 the previous day.

“It’s been a volatile week, so we’re seeing a bit of respite today,” said Ipek Ozkardeskaya, market strategist at London Capital Group.

“And oil is up by more than 2 per cent, which is also a key reason for the upside in equity indices this morning.”

Britain's FTSE 100 was up 0.6 per cent, Germany’s DAX rose 0.7 per cent, and France’s CAC 40 was up 0.6 per cent.

The STOXX Europe Basic Resources and the Oil and Gas indexes were both up around 2 per cent, the top two sectoral gainers, tracking the rise in crude prices.

The FTSEurofirst, DAX and CAC are still down on the week, however, although Britain’s FTSE is on course to eke out a modest gain.

Earlier in Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan ended flat on the day, closing out the week down 1.2 per cent.

Japan’s Nikkei erased earlier losses after Finance Minister Taro Aso said the government would take steps to counter “one-sided” moves in the yen in either direction.

The yen’s strength is regarded as negative for Japan’s big exporting firms, and after earlier falling to near-two-month lows, the Nikkei ended the session up 0.5 per cent, leaving it with losses of 2.1 per cent for the week.

US futures pointed to a rise of around 0.6 per cent at the open on Wall Street. The S&P 500 fell 1.2 per cent on Thursday, its biggest loss since February 23, and is on course for its biggest weekly decline in two months.

Fed clarity?

Much of the volatility this week has been fuelled by the yen’s surge against the dollar, which caught many market participants off-guard and fuelled speculation Tokyo could intervene in the currency market to halt the rally.

The dollar rebounded 0.7 per cent against the yen on Friday to 109.00, leaving it set for a weekly fall of 2.3 per cent. On Thursday, it fell as low as 107.67 yen.

Sharp appreciation of the yen against the dollar is often a warning sign of broader financial market stress and investor risk aversion, which has been exacerbated this week by growing uncertainty surrounding the US economic and policy outlook.

But many forecasts, including the closely-followed Atlanta Fed GDPNow tracker, have slashed first quarter GDP estimates to just 0.4 per cent, and US interest rate futures still see a less than 20 per cent chance of a rate hike in June.

Next up is New York Fed president Bill Dudley, a dovish and influential policymaker, who speaks later on Friday.

“A combination of falling US real rates and elevated market volatility are weighing on the dollar versus the euro and yen,” BNP Paribas currency strategists wrote in a note to clients on Friday.

“New York Fed President Dudley speaks today and could provide another counterweight to the various Fed presidents advocating resumption in rate hikes in recent weeks.”

The euro was trading at $1.1380, unchanged on the day and flat on the week, having hit a six-month high of $1.1454 on Thursday.

The 10-year US Treasuries yield was last up 3 basis points at 1.72 per cent, having fallen to a six-week low of 1.685 per cent on Thursday. It has fallen 25 basis points in the last four weeks.

In commodities markets, copper last traded at $4,672 a tonne, having suffered its biggest fall in more than six months on Thursday, when it slumped 2.8 per cent to a six-week low of $4,631 a tonne.

Oil prices rose on Friday after firm economic indicators from the US and Germany implied support for fuel demand, but analysts warned another downturn could be on the way due to ongoing oversupply.

Global benchmark Brent crude futures climbed 3 per cent to $40.63 per barrel and were set for an increase of 5 percent on the week. US crude advanced 3.4 per cent to $38.55, also on track for a 5 per cent weekly gain.

COMMENT NOW