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London - Wherever you look in global financial markets, signs are emerging that the fallout from Britain’s vote to leave the European Union is under control.
Global stocks are rising for a fifth day, having recovered almost $4trn in value lost in the days following the UK’s June 23 referendum, and emerging-market valuations are near their highest in more than a year.
Copper is rising, boosted by signs policy makers are prepared to act to limit the fallout, while acquisitions have resumed and corporate bond sales are showing signs of picking up.
The yen and government bonds, while climbing on Wednesday, have given back much of the gains they made since the Brexit vote.
Calm is returning to global markets on speculation central bank action will be sufficient to restrict any Brexit contagion. Economists predict the Bank of England will cut interest rates on Thursday, while Japanese Prime Minister Shinzo Abe has ordered more fiscal stimulus.
Traders are pricing in less than 35% odds of the Federal Reserve raising rates this year, even though Fed Bank of St. Louis President James Bullard says he expects near-zero impact on the US. The mark on the UK is more enduring, with sterling about 11% weaker versus the dollar since the vote.
36 South Capital Advisors, a London-based volatility hedge fund, was surprised at how rapidly markets settled, according to chief investment officer Richard Haworth.
"This is the strangest environment I’ve seen in 30 years," Haworth said. "I had a sneaking suspicion that Brexit could have been the butterfly’s wing that created a hurricane down the line. But maybe, maybe not."
The MSCI All-Country World Index rose 0.2% at 10:38 a.m. London time, leaving them 0.4% stronger than the close on the day before the results of Britain’s referendum were released.
Bank of America Merrill Lynch’s GFSI Market Risk Index, a measure of future price swings implied by option markets in global equities, rates, currencies and commodities, has fallen to the lowest since June 7.
Stocks
The Stoxx Europe 600 Index added 0.3%, rising for a fifth day in the longest winning streak since the Brexit vote. The gauge is within 10 points of erasing its losses after the June 23 referendum.
An index of European commodity companies headed for the highest level since August as a rally in copper helped Glencore and BHP Billiton rise at least 1.9% each. Nokia Oyj advanced to the highest level since April after expanding its patent cross-licensing agreement with Samsung Electronics Company Accor SA rose after announcing plans to separate its HotelInvest unit and eventually sell a majority stake in the subsidiary.
Playtech climbed after saying it bought Vienna-based Best Gaming Technology GmbH for €138m Steinhoff International Holdings agreed to buy UK discount chain Poundland Group for £597m a day after AMC Entertainment Holdings moved for Odeon & UCI Cinemas Group in a £921m deal.
Bank Pekao, Poland’s second-biggest bank, dropped 4.5 %, set for the biggest decline in more than a year, after Italy’s UniCredit said it was selling as much as 10% of the company to raise capital.
Futures on the S&P 500 Index were little changed, after the benchmark ended the last session at a record high. The CBOE Volatility Index, the measure of future volatility in US stocks, has almost halved since June 24, when the shock Brexit vote caused the wildest swings since August 2011.
A similar gauge of European stock volatility fell on Tuesday to the lowest level since May.
The MSCI Emerging Markets Index climbed 0.2%. Hong Kong’s Hang Seng China Enterprises Index advanced 0.6%, its third day of gains. China’s exports and imports slipped in dollar terms in June as soft demand continued to weigh on trade.
In yuan terms, outbound shipments posted a small gain, reflecting the influence of a weakening currency.
Currencies
The yen strengthened 0.1% to 104.55 per dollar, after sliding more than 4% over the last two days. Abe has ordered his economy minister to compile stimulus measures this month, while the Sankei newspaper reported government officials are considering "helicopter money" as a policy option.
Chief cabinet secretary Yoshihide Suga said such a policy, which involves the central bank directly financing government spending, was not being looked at.
The pound rose 0.2% to $1.3270, headed for its longest winning streak in two months, before Theresa May takes over as prime minister later on Wednesday, ending a period of political instability that has lasted since the EU vote.
The result of the referendum pushed sterling to its worst day on record and sent the pound to the lowest level since 1985 last week, before it recovered some of that ground as it became clear a new leader would take power earlier than previously thought.
The yuan was little changed at 6.6959 per dollar in offshore trading amid speculation China’s central bank is limiting the supply of the currency in Hong Kong to deter bets on depreciation, as it did in January to halt the yuan’s slide to a five-year low.
The currency’s overnight interbank rate in Hong Kong more than doubled to 4.83%, the highest since February.
"It feels like the People’s Bank of China is quite serious about defending the 6.7 level," said Tommy Xie, an economist at Oversea-Chinese Banking Corporation in Singapore. "This reminds me of what happened in January."
Malaysian ringgit forwards briefly extended losses after the central bank cut interest rates, surprising all but one economist in a Bloomberg survey. One-month non-deliverable contracts slid as much as 1% to 4.0058 per dollar before paring the decline to 3.9850. The yield on three-year notes fell three basis points to 3.01%.
Commodities
Crude oil fell 1.3% to $46.20 a barrel, after jumping 4.6% on Tuesday, when US industry data was said to show the nation’s stockpiles increased by 2.2 million barrels last week. Government figures on Wednesday are forecast to show supplies slid.
Copper climbed 1.5% in London, building on a 3.9% advance over the last three trading days, on speculation central-bank stimulus measures will buoy demand for materials. Iron ore rose to the highest level since April on the Dalian Commodity Exchange as steel rebar traded near a 10-week high in Shanghai. Nickel fell 1.7%, retreating from an eight-month high.
Cotton jumped as much as 5% to a two-year high in China after the US Department of Agriculture cut its projections for world output and stockpiles by more than analysts forecast.
Bonds
Treasuries rose, sending the yield on notes due in a decade two basis points lower to 1.49%. The rate, which sank to an unprecedented 1.32% a week ago, surged 15 basis points over the past two sessions as demand at auctions of three- and 10-year weakened to levels last seen in 2009.
Germany’s securities also halted a two-day decline, even as the nation auctioned 10-year debt with a negative yield for the first time. Yields are negative on around 38% of the $25.3trn of securities that comprise the Bloomberg Global Developed Sovereign Bond Index.
Deutsche Bahn this week became the first non-financial company to sell negative-yielding bonds in euros. The German state-owned railroad sold €350m of five-year debt to yield minus 0.006% on Tuesday, according to data compiled by Bloomberg.
Investors who rushed into bonds last week will face a hard time making money as rates begin to rebound, according to Jeffrey Gundlach, chief executive officer of DoubleLine Capital.
