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Hong Kong - Global stocks rallied for a second day and the dollar weakened amid speculation that policy makers will mitigate the damage of the UK’s vote to leave the European Union (EU), including a pause in the Federal Reserve’s tightening cycle. Crude oil rallied and the pound rose.
The MSCI All-Country World Index headed for its highest level since before the Brexit vote and US equity-index futures advanced as odds indicated the Fed is more likely to cut rates than raise them over the rest of the year.
Sterling erased earlier losses, having rebounded in the last session from near a 31-year low.
Oil climbed above $48 a barrel and gold gained, while the dollar retreated against most of its major peers.
Emerging-market stocks and currencies climbed for a second day. Bond yields in Spain, Portugal and Italy slipped, while those on Japanese debt fell to a record low.
Investors are looking to policy makers for support as they await Britain’s plan for its extrication from the EU, something that’s being held back by political upheaval in the country following the vote and Prime Minister David Cameron’s consequent resignation.
South Korea announced a fiscal stimulus package on Tuesday and Bank of Japan chief Haruhiko Kuroda said on Wednesday that more funds can be injected into the market should they be needed.
“We had a bumpy week and we’re bouncing back,” said Patrick Spencer, equities vice chairman at Robert W. Baird & Company in London. His firm manages $151bn. “Not raising rates any time soon should take some of the pressure off the dollar and the domestic economy remains reasonable which should support earnings improvement and market fears.”
EU leaders gather in Brussels on Wednesday for the second day of a two-day European Council summit to discuss Britain’s withdrawal from the bloc. They have already said that there can be no turning back for the UK and warned Cameron that delaying the period before formally activating the EU exit mechanism will prevent the start of negotiations over any future relationship.
Stocks
The MSCI All-Country World Index rose 1% at 11:30 a.m. in London. The Stoxx Europe 600 Index climbed 2.4%, with banks and miners among the best performers. The equity gauge has recovered 5% after tumbling 11% over two days following the shock result of the UK. referendum. It is still heading for a second quarterly decline.
The FTSE 100 Index added 2.5% on Wednesday and is within 0.7% of its pre-Brexit close.
Futures on the S&P 500 Index rose 0.6% after the US benchmark jumped 1.8% in the last session, its best performance in almost four months. Nike Inc. slid 3.8% in early New York trading after its future orders missed estimates, renewing concerns that the world’s largest sports brand has entered a period of slowing growth.
Monsanto reports earnings on Wednesday. Investors will also look to data on personal income and spending for indications of the health of the world’s biggest economy.
The MSCI Asia Pacific Index climbed 1.7% as benchmarks advanced across the region. Japanese Prime Minister Shinzo Abe said on Wednesday he will mobilize all possible measures to deflect the negative effects of the so-called Brexit vote.
The MSCI Emerging Markets Index climbed 1.4%, extending Tuesday’s 1.3% advance. It is still heading for a 2.4% quarterly losses, for the first decline since the period ended in September. Shares in South Korea, Taiwan, Indonesia and the Philippines led gains, rising at least 1 percent.
Tour operator TUI retreated 4.2% in London after coordinated terror attacks killed at least 36 people and wounded about 150 at Turkey’s main international airport.
Turkish aviation stocks fell after the attacks heightened security concerns and threatened to further hurt the nation’s struggling tourism industry.
Turkish Airlines dropped 1.7% and airport operator TAV Havalimanlari Holding AS slid 5.4%, heading for the biggest decline since March.
Currencies
The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, slid 0.3% following a 0.5% loss in the last session, amid speculation about the path of Fed interest rates.
Sterling advanced for a second day against the dollar as investors await Britain’s plan for its extrication from the 28-nations bloc.
“Markets have calmed down somewhat,” said Thu Lan Nguyen, a foreign-exchange strategist at Commerzbank in Frankfurt.
“We may see some short term continuation of the recovery in the pound if there is an increased chance of a new prime minister who can secure the access of the UK to the single market. But uncertainty is still high and market participants are jittery.”
The yen was little changed following a 0.7% decline on Tuesday. Nomura Holdings became the latest brokerage to raise its year-end forecast for the currency and now expects a 17% increase after the UK’s decision to leave the EU spurred a rush for it as a haven.
The MSCI Emerging Markets Currency Index added 0.6%. South Africa’s rand led the advance, rising 1.2%, followed by a 1% gain in South Korea’s won.
Indonesia’s rupiah added 0.1%, extending this week’s increase to 1.6% and heading for the highest close in two months. The central bank said it will intervene in the foreign-exchange market to prevent the rupiah from gaining too much from a possible increase in inflows following a recently passed tax amnesty law.
The offshore yuan strengthened for the first time in five days, gaining 0.3% in just over an hour.
Chinese authorities intervened via banks to support the offshore yuan in morning trading, according to people with knowledge of the matter. The People’s Bank of China didn’t immediately respond to questions sent by fax from Bloomberg.
Commodities
The Bloomberg Commodity Index, which measures returns on raw materials, extended Tuesday’s 1.9% rally with a 0.2% advance.
Gold recovered some of the previous session’s losses, adding 0.4% to $1 317.51 an ounce on speculation that the Fed’s interest rate policy will boost the precious metal’s allure.
West Texas Intermediate crude climbed 1.3% to $48.47 a barrel, building on last session’s 3.3% jump. US oil inventories fell by 3.86 million barrels last week, the American Petroleum Institute was said to have reported, ahead of government data due on Wednesday.
Cotton futures for December delivery rose 0.4% to 66.12 cents a pound on ICE Futures US in New York. Prices extended Tuesday’s 2.3% rally and are trading near the highest since August 2015.
US farmers probably planted fewer acres than previously expected, after rain disrupted fieldwork in some areas, according to a Bloomberg survey before the US Department of Agriculture updates its estimate on Thursday.
Bonds
The yield on 10-year Treasuries lost one basis point to 1.46%. US government debt has returned about 5.5% so far this year, poised for the biggest back-to-back quarterly advance since 2011, a Bloomberg index shows.
JPMorgan Chase, Standard Chartered, TD Securities and Standard Bank Group - the four firms that have updated their Treasury forecasts since the UK’s referendum - all see 10-year yields rising in the coming 12 months.
"Treasury prices are too high,” said Enna Li, a debt investor in Taipei at Mirae Asset Global Investments Company, which oversees $83bn worldwide. 'I wouldn’t buy any. The US economy is still fine."
Spain’s 10-year bond yield fell two basis points to 1.29%, after sliding to as low as 1.23%, the least since April 13, 2015. The yield on Portuguese debt slipped three basis points, while for Italy it also dropped three points.
The five-year, five-year forward inflation-swap rate, a rolling gauge of inflation expectations that European Central Bank President Mario Draghi cited in the past when advocating monetary stimulus, was at 1.28%, after dropping to 1.26% on June 27, the lowest since Bloomberg started tracking the data in 2004 and far from the ECB’s goal of just under 2%.
Yields on Japan’s five- and 10-year bonds sank to fresh lows of minus 0.32% and minus 0.24%, respectively, while the rate on German notes due in a decade dropped 1 basis point to minus 0.13%.
Europe’s corporate-bond market reopened following a six-day shutdown caused by the Brexit referendum. Molson Coors Brewing Company was offering eight-year bonds in euros, according to a person familiar with the matter, who asked not to be identified as they aren’t authorized to reveal the information.
The beer maker raised $5.3bn in a US sale on Tuesday.
The cost of insuring corporate debt against default fell for a second day. The Markit iTraxx Europe Index of credit-default swaps on investment-grade companies dropped five basis points to 90 basis points.
A gauge of swaps on junk-rated companies declined 17 basis points to 379 basis points. Both indexes are near the highest since early March.
