Global stocks, dollar rise as bearish sentiment eases
Reuters
First Posted 04:49:00 07/04/2008
NEW YORK — Global stocks and the dollar closed higher on Thursday after recent slides, as increasingly bearish expectations for European rate rises and US employment were dashed by a dose of moderately favorable news.
Crude prices retreated from another all-time high of $145.85 a barrel during the session, further helping sentiment among equity investors. The rise in oil has been a key factor pushing stocks into a bear market.
The Dow industrials earlier this week extended their decline to the 20 percent level at which a market is considered depressed; the more buoyant and broadly-based S&P 500 briefly crossed the "bear" threshold during the day but then edged higher at the close.
The euro fell and shares and euro zone government bonds rallied after the European Central Bank snuffed speculation that an aggressive interest rate policy was at hand.
The ECB raised its benchmark rate by one-quarter percentage point to 4.25 percent, the major Western bank to raise interest rates since the credit crisis erupted last August.
However, the ECB scaled back expectations of more hikes.
Trading was light but volatile in a shortened US session ahead of the long holiday weekend to mark America's Independence Day on Friday.
A rally in super major oil companies and beaten-down financial shares helped lift US equities, as did a US jobs report for June that was not as weak as many feared.
ConocoPhillips and Chevron Corp. both rose about 1.2 percent and Exxon Mobil Corp. rose almost one percent.
"The numbers weren't as bad as they could have been," said Joe Saluzzi, co-manager of trading at Themis Trading in Chatham, New Jersey. "Some people had feared 100,000 in job losses or more."
The dollar's strength also buoyed sentiment as the price of oil is priced in the US currency, Saluzzi said.
Energy-related shares, including drillers, gas companies and oil services, fell.
The Dow Jones industrial average rose 73.03 points, or 0.65 percent, at 11,288.54. The Standard & Poor's 500 Index rose 1.38 points, or 0.11 percent, to 1,262.90. The Nasdaq Composite Index fell 6.08 points, or 0.27 percent, at 2,245.38.
It was the fifth straight weekly loss for both the Nasdaq and the Dow, and third weekly loss in a row for the S&P 500.
The tech-laden Nasdaq fell as semiconductor stocks suffered after graphics chip maker Nvidia Corp. cut its sales and profit margin outlook, citing global market weakness.
Nvidia shares plunged 31 percent to close at $12.49, and semiconductor stocks slipped almost one percent.
In Europe, markets were taken by surprise when ECB president Jean-Claude Trichet said he had "no bias" in terms of monetary policy, remarks that investors interpreted as a sign no more rate increases loomed.
Banking stocks rose as they usually benefit from periods of steady or falling rates, pushing up BNP Paribas, Royal Bank of Scotland and Societe Generale by more than four percent.
The FTSEurofirst 300 index of top European shares closed up 0.87 percent at 1,178.04 points. The index swung between losses of 1.6 percent and gains of 1.2 percent, marking its most volatile day since late March.
"The vast majority of analysts were anticipating the European Central Bank would have raised rates today," said Henk Potts, a strategist at Barclays Stockbrokers.
"They also anticipated a very hawkish statement to come through from that and it was certainly nowhere near as strong as many had expected," he said.
Oil jumped. Some traders expected a weak US dollar, lower US crude stocks, and tension between Israel and major oil producer Iran would push prices to $150 before the close of trade, in line with a prediction made in early June.
Investment bank Morgan Stanley, one of Wall Street's biggest energy traders, said crude could reach $150 by July 4.
The US oil settled up $1.72 at $145.29 a barrel. London Brent settled at $146.08, up $1.82 after reaching an intra-day record of $146.69 a barrel earlier.
"What is more concerning is it is very difficult to know why it is going up. No one really knows the answer," said Colin Morton with Rensburg Fund Management. "It seems to be about momentum now. It's going up because it is going up."
The dollar rose broadly after expectations of the US jobs data and ECB rate stance were not excessively bearish.
The June payroll suggested the US job market had not deteriorated as much as many investors had feared, while Trichet struck a more accommodative tone.
Demand for the dollar started to rise after the jobs report for came in at a loss of 62,000— in line with expectations and consistent with a mild recession. A much sharper decline in payrolls would have triggered a sell-off in the US currency.
The euro fell 1.16 percent at $1.5694. The dollar rose against major currencies, with the US Dollar Index up 1.02 percent at 72.758. Against the yen, the dollar rose 0.79 percent at 106.70.
Short-dated US government debt prices edged up as weak data reinforced a dour view of the US economy and pared expectations that the Federal Reserve will raise interest rates any time soon.
The two-year US Treasury note rose 3/32 to yield 2.53, but longer-dated debt fell. The benchmark 10-year US Treasury note slid 3/32 to yield at 3.97 percent and the 30-year US Treasury bond slipped 14/32 to yield 4.53 percent.
In fact, traders bet a steady rate policy by the Fed will be inflationary down the road as food and oil prices continue to advance in record territories. They dumped long-dated debt in favor of less inflation-sensitive shorter maturities.
Gold retreated on the dollar's gains and Trichet's comments that were less hawkish than expected.
Spot gold prices fell $11.65 to $932.70 by New York's last quote.
Asian stocks fell, with Japanese stocks posting their longest losing streak in a half century on heightened fears that record high oil and stagflation will slam company earnings and consumer spending.
Japan's Nikkei share index fell 11th consecutive day, the longest period of daily declines since 1954.
The MSCI index of Asia-Pacific shares traded outside of Japan fell 1.4 percent to the lowest since a blowup in the US subprime mortgage sector turned into a global credit crisis 10 months ago.
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