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Global stocks rally with won, oil on US optimism

London - Global equities rose to a two-week high after US housing data spurred optimism the world’s largest economy can withstand higher interest rates. Oil advanced and gold fell amid a retreat in the dollar.

The MSCI All Country World Index advanced for a second day as futures foreshadowed gains in US shares.

South Africa’s rand and South Korea’s won led gains among major currencies as the Bloomberg Dollar Spot Index fell from a two-month high. The yuan traded near a three-month low after China’s central bank set the weakest reference rate in five years.

Crude rallied above $49 a barrel as gold declined for a sixth day, its longest losing streak since November. The yield on 10-year US Treasuries held near a three-week high, while Greek bonds rose after creditors agreed to release bailout funds.

Investors appear to be growing more comfortable with the prospect of higher US interest rates, with global stocks having regained levels seen before last week’s release of minutes from the Federal Reserve’s April meeting.

The minutes fuelled expectations that the central bank will add to December’s interest-rate increase and traders are pricing in a better-than-even chance of a hike by July.

American data on Tuesday showed purchases of new homes surged in April to the highest since the start of 2008, bolstering the case for borrowing costs to be raised.

"We’re seeing risk-off phases, like last week, when people are conscious of an interest-rate increase, but the market won’t be in that kind of state indefinitely," said Yoshinori Shigemi, a global market strategist at JPMorgan Asset Management in Tokyo. "The US is coming closer to full employment, and there is underlying strength in the economy."

Data on US services output and house prices is due Wednesday, while Canada’s central bank will review interest rates. A gauge of German business confidence is also scheduled and Italy will report industrial orders figures for March. Leaders from the Group of Seven nations will meet for talks in Japan from Thursday.

Stocks

The Stoxx Europe 600 Index was 0.8% higher in London time, after rallying more than 2% on Tuesday. UniCredit SpA rose to a three-week high after Italy’s biggest bank announced chief executive officer Federico Ghizzoni will be stepping down after almost six years at the helm.

The MSCI Asia Pacific Index climbed 1.7%, rebounding from a seven-week low as Hong Kong’s Hang Seng Index gained 2.5%.

China Coal Energy jumped as much as 11% in Hong Kong after Citigroup upgraded its recommendation on the stock amid speculation the nation’s four biggest coal producers will increase prices in June. Sony surged 6.5% in Tokyo as investors ignored a weak profit forecast, looking instead to the company’s long-term prospects in entertainment and sensors needed for driverless cars. Toyota Motor advanced the most in a month after the company announced it will invest in Uber Technologies.

Futures on the S&P 500 added 0.2% following the US benchmark’s 1.4% gain in the last session.

Currencies

The Bloomberg Dollar Spot Index declined 0.1%, trimming this month’s advance to 3.4%. The probability of a Fed rate hike in June has ticked up to 34%, from 12% a week ago, while odds of an increase by July are now at 54%, according to Fed funds futures tracked by Bloomberg.

The yen was little changed near 110 versus the greenback after Goldman Sachs Group Inc. predicted the Japanese currency would slide 12% by this time next year.

While the Fed is considering adding to a December interest-rate increase, central banks in the euro region and Japan are pursuing record monetary-easing programs to spur growth.Fed officials including the presidents of the central bank’s regional arms in San Francisco, Boston and Philadelphia have spoken this month in support of higher borrowing costs. Chair Janet Yellen is scheduled to speak on Friday.

The rand and the won strengthened 0.8%, paring their respective losses for the month to 8.4% and 3.7% as the equities rally bolstered demand for emerging-market assets. The ringgit strengthened 0.6% as the increase in oil prices brightened prospects for Malaysia, Asia’s only major net exporter of crude.

The yuan was little changed in Shanghai, having dropped as much as 0.1% after the People’s Bank of China cut its reference rate for the currency to the weakest level since March 2011.

Steep drops in the fixing in early in January raised concern about the health of China’s economy, spurring a $7trn selloff in global equities in the first two weeks of that month. The earliest batch of private economic indicators point to sluggish growth in the nation for May.

Commodities

Crude oil rose as much as 1.7% to a seven-month high of $49.45 a barrel in New York as weekly US industry data showed stockpiles declined, easing a glut. Inventories dropped by 5.14 million barrels last week, the American Petroleum Institute was said to report.

Figures from the Energy Information Administration on Wednesday are also forecast to show supplies fell.

Copper advanced 0.2% in London, while aluminium and tin fell. Gold declined 0.2%, headed for its lowest close in more than a month.

Bonds

Greece’s 10-year bonds rose for a fourth day, pushing their yield down by 17 basis points to 7.06%, the lowest since November. Euro-area finance ministers and the International Monetary Fund reached an agreement that will allow for the release of $11.5bn) of aid to Greece and have committed to taking steps to relieve the burden of the nation’s €321bn of debt.

The yield on 10-year US Treasuries increased by one basis point to 1.87%, matching its average level for 2016.

"The Treasury yield could end up a little bit above 2%", as the Fed raises rates, said Stephen Roberts, an economist at Laminar Group, a Melbourne-based fixed-income adviser.

"The US, of developed economies, has had the best of the economic recovery we’ve had since the global financial crisis."

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