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The Accumulator: markets bounce as oil takes off

A terrible month for markets has ended on a high, thanks to a spectacular rebound in the oil price and Japan's interest rate surprise.

 

by Sam Antrobus on Jan 29, 2016 at 16:04

The Accumulator: markets bounce as oil takes off

Worsening investor sentiment towards China was not enough to bring down global markets this week, which rode the wave of the continued oil price comeback.

As shown within our exclusive Accumulator data table, which covers the five days to yesterday, Brent crude’s 15% rise from just over $29.50 to $34 a barrel soothed equity markets and helped go some way to reducing the damage inflicted throughout much of January.

Having last week fallen to its lowest price since 2004 on persistent oversupply fears, oil rebounded in spectacular fashion, helped by the claim from a Saudi Arabian minister that its plummet was ‘irrational’. Crude was helped along the way by US data showing a jump in demand for products such as heating oil following the cold snap in the country.

Commodity-reliant emerging markets enjoyed some desperately needed relief, with the MSCI Russia index soaring 16.8% higher and the MSCI Brazil index rising 3.6%. Closer to home, the comfort brought to oil producing mega caps in the FTSE 100 helped lift the index by 2.7%.

The only major index to suffer losses this week was China’s Shanghai Composite, down 9.4%, and suffering its worth month since the depths of the financial crisis.

But global markets refused to be dragged down by China’s latest fall, with oil’s rally sparking a welcome injection of relief.

The week was also one where currencies held sway. The pound, having trailed the dollar, yen and euro since the turn of the year, snapped a slump that had seen it fall to a seven-year low against the greenback to post gains against all three currencies.

Sterling’s rally came after data showed the UK economy grew 0.5% in the last three months of 2015, up from the previous quarter’s 0.4% and dispelling some of the more bearish fears from investors.

Doves in the US, Japan and Europe meanwhile conspired to send their currencies lower. The euro fell 0.7% against the pound after European Central Bank president Mario Draghi last week hinted at more quantitative easing in March. The US Federal Reserve also struck a dovish tone this week, flagging ‘global economic and financial developments’ and hinting it may not be as quick to make its next hike as it had led markets to believe, in a move that sent the dollar 1.8% lower against the pound.

But it was the Bank of Japan which dropped the biggest surprise. Even before last night’s shock announcement of negative interest rates, the yen had fallen 2.9% against the pound, and it has plummeted a further 1.2% today.

The Topix and the Nikkei indices soared 2.9% and 2.8% respectively following the move, with markets across the Asian region all having enjoying a solid week. The MSCI Asia Pacific ex Japan index was up 1.9%, while Hong Kong’s Hang Seng received some respite with a 2.1% increase.

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