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Hong Kong - European stocks rallied, helping end the steepest selloff in global equities since January, as the British pound rebounded ahead of the Federal Reserve’s policy review.
The yuan traded near a five-year low after MSCI decided to keep Chinese equities out of its benchmark indexes.
The Stoxx Europe 600 Index climbed for the first time in six days and most shares rose on the MSCI Asia Pacific Index. Shanghai equities reversed initial losses, spurring speculation state-backed funds were supporting prices. The British pound strengthened, after sliding more than 1% in two of the last three trading sessions, and the yen retreated from its strongest level since 2014.
Crude sank to about $48 a barrel after a report showed US stockpiles increased, while copper rose. Japanese bond yields plumbed new lows.
About $2.5trn was wiped off the value of global equities in the past week and the pound tumbled as a slew of polls showed growing support for Britain to leave the European Union ahead of a June 23 referendum.
The vote is making investors wary before central banks in the US, Japan and the UK review monetary policy this week. MSCI, whose emerging-markets index is tracked by some $1.5trn of funds, said more improvement in access to China’s stock market was needed before the nation’s equities can be added to its benchmarks.
“While we get a bounce following the huge knockdown across markets, investors should probably sell into the strength ahead of the Brexit vote,” said Nicholas Teo, a trading strategist at KGI Fraser Securities in Singapore. “There’s a lot of uncertainties out there. A statement from the Fed tonight may help calm the market, but concerns remain on the timing of the rate hike.”
The Fed is expected to keep the benchmark lending rate unchanged when its two-day policy meeting concludes in Washington, though the central bank’s statement and chair Janet Yellen’s comments at a press briefing will be scrutinised for clues on the likely timing of the next increase.
Futures indicate the odds of a move by July tumbled to 16% from 53% since the start of this month, damped by weak US payrolls data and turbulence in global financial markets.
Stocks
The Stoxx Europe 600 Index climbed 1.2% as of 09:16. Inditex SA jumped 3.1% after the world’s largest clothing retailer reported first-quarter profit that beat analysts’ estimates. The U.K.’s FTSE 100 Index added 0.7%, after the gauge on Tuesday closed below 6 000 for the first time since February.
Futures on the S&P 500 Index were little changed, after the US benchmark ended the last session at a three-week low.
The MSCI Asia Pacific Index rose 0.1%, after sliding 4.4% over the last four trading days. Japan’s Topix rebounded from a two-month low as the yen snapped a three-day advance and Hong Kong’s Hang Seng Index gained 0.2%. Toshiba surged more than 7% in Tokyo as brokerages including CLSA turned more positive on the stock.
The Shanghai Composite gained 1.6%, after earlier sliding as much as 1.1% following the MSCI decision. China’s benchmark is still down 18% for the year.
“It’s a sharp reversal so there has to be some government intervention,” said Francis Lun, chief executive officer at Geo Securities in Hong Kong. “The Chinese government never wants to see the market falling too much.”
Currencies
The yuan fell as much as 0.1% to a five-year low of 6.6047 a dollar in Shanghai, before trading little changed at 6.5933.
The pound strengthened 0.4% to $1.4166. It slid 1.1% on Tuesday after five opinion polls in two days put the ‘Leave’ campaign ahead of ‘Remain’ in the run-up to the EU vote and as Britain’s best-selling newspaper, The Sun, backed a withdrawal.
The amount wagered on the currency falling to $1.35 or lower - levels last seen in the 1980s - after the referendum has more than doubled during the past three months.
The yen weakened 0.2% to 106.28 per dollar, after rallying almost 1% over the past three sessions. It touched 105.55 on May 3, the strongest level since October 2014.
New Zealand’s dollar rose 0.5%, the best performance among 16 major currencies tracked by Bloomberg. It recovered from earlier weakness as shares rallied in China, the country’s biggest export market.
Commodities
West Texas Intermediate crude slipped 1.1% to $47.95 a barrel, falling for a fifth day. Concern over a global glut in the commodity reemerged with the American Petroleum Institute reporting a 1.16 million-barrel increase in US oil inventories for last week.
Nigerian militants, whose attacks on oil infrastructure have sent the country’s output plunging to its lowest level in 27 years, also said for the first time they are considering peace talks.
Copper rose 1.5% in London and nickel gained 1%, advancing for the first time in a week. Gold was little changed, after surging 3.4% over the last five days.
Bonds
Yields on Japan’s benchmark government bonds were at record lows across tenors from two to 40 years.
The rate on notes due in a decade fell to an unprecedented minus 0.195%, while 20-year and 30-year yields touched historic lows of 0.135% and 0.21%, respectively.
Ten-year US Treasuries yielded 1.62%, after ending the last two sessions at 1.61%, the lowest closing level since 2012. The rate on similar-maturity German debt held near zero, after sliding into negative territory for the first time on Tuesday as the UK’s potential exit from the EU fueled demand for haven assets.
