Markets In Review – Enjoying Risk-On While It Lasts
Markets grow appetite for risk, helping equity prices to new highs.
■ S&P 500 adds 1.6% weekly, marking new highest point since Dec 15’
■ Safe havens such as sovereign bonds and gold lose amid markets’ risk-on sentiment
■ Oil prices peak over USD 42 per barrel in anticipation for Doha supply freeze
Augmented appetite for yield dominated the weekly trading session, or at least the most of it. The S&P500, namely, saw a 1.6% weekly increase, with a Tuesday to Thursday rally adding 2% to the U.S index. Hitting 2082.78 points at the end of Thursday’s session marked the peak for the S&P since the early days of December of last year. The party was even merrier across the Atlantic with the DAX increasing by 4.5% weekly and the FTSE 100 rising 2.2%. Japan also saw impressive weekly gains with the Nikkei 225 surging 6.5%. Hong Kong, alternatively, saw the Hang Seng rise a more modest 4.6%, amid Friday as GDP was reported to have gained 6.7% in the first quarter, as expected.
Safer assets, alternatively, have been in a red this week. Yields on bonds globally, which move inversely to their price have increased with the U.S. 10 year yield adding as much as 0.08% between Monday and Thursday. Some recovery, however, was seen on Friday as the yield of the U.S. 10 year lost 0.03% in tandem with the red session for equity.
In spite of seeing gains on Monday, Gold also played as a safe haven in this scenario, with Tuesday to Thursday losses amounting to over USD 30 per oz. and Friday gains of about USD 7 per oz. seeing the metal of kings end the week with a modest half a percentage point loss.
The road to Doha
Oil prices proved to be a fairly solid performer this week. Expectations for a freeze of production at the Doha Summit have helped the black gold add no less than 4.4% between Monday and Thursday, seeing oil hit as much as USD 42.42 per bbl, its highest intraday mark since late November of last year. Needless to say, with the recent elevated correlation between equity and oil prices, much of the aforementioned positive session for stocks can be attributed to the strength exhibited by oil.
Optimism in oil dispersed on Friday, however, amid commentary from Saudi deputy crown prince bin Salaman that no restraining of Saudi oil production will take place, unless other producers, including Iran agree to freeze output. Response, needless to say, was rather harsh, with oil falling to test USD 40 support levels. Friday also saw Baker Huges (BHI) report of a continued fall at the number of U.S. rigs, hitting a mere 440. And while this aided oil prices advance somewhat, towards USD 44.70 gains didn’t last long with oil finishing at USD 40.36, a modest 1.7% weekly increase.