Global Stocks Charmed by Central Banks as Oil Jumps, Bonds Fall

• Brent crude rises more than 7% to trade at $31 a barrel
• U.S. shares add to rally, poised for first weekly gain of year

U.S. stocks added to a global rally in equities, with the Standard & Poor’s 500 Index heading for the first weekly gain this year, on speculation that central banks will expand stimulus measures to counter turmoil in financial markets. Oil headed for its biggest rally in seven years, while haven assets retreated.
The S&P 500 rose more than 1.5 percent for a second day of gains after falling to a 21-month low. The Dow Jones Industrial Average’s advance lagged, as disappointing results dragged down American Express Co. and General Electric Co. European shares enjoyed the biggest two-day rally since 2011, while the euro approached a two-week low on the European Central Bank’s signal that it may bolster economic support as soon as March. Asian stocks climbed the most since September on speculation Japan and China may also take steps to calm markets. Crude was poised for its steepest two-day rally in five months. Yields on 10-year Treasury notes rose above 2.05 percent.

WTI rebounds after ECB President Mario Draghi suggests on Thursday that he's prepared to boost stimulus

The turnaround in sentiment came amid signs central banks may be prepared to act after $7.8 trillion was erased from the value of global equities this year on China’s slowdown and oil’s crash. Diminished inflation expectations and a strengthening yen are seen as increasing pressure on the Bank of Japan to enlarge stimulus at its meeting next week. China will keep intervening in its equity market to “look after” investors and has no intention of further devaluing the yuan, Vice President Li Yuanchao said.
“It’s a classic oversold bounce after Draghi’s comments yesterday and the noise on Japanese stimulus overnight, the question is where do we go from here,” said Veronika Pechlaner, who helps oversee $10 billion at Ashburton Investments, part of FirstRand Group. “It’s become harder and harder for stimulus to really support the economic fundamentals so it doesn’t mean a medium- and long-term change, but at least we have a bit more stable trading environment for a couple of days.”
Stocks
The S&P 500 jumped 1.6 percent at 1:10 p.m. in New York, erasing its loss for the week. The gauge pared its drop in 2016 to 7 percent, and it remains 11 percent below its all-time high set in May. The Dow Jones Industrial Average climbed 0.7 percent, with gains tempered by the biggest one-day slide in American Express since 2009.
“It looks like central banks are on the warpath against weakness,” said Andrew Brenner, head of international fixed income for National Alliance Capital Markets in New York. “That’s going to put a real risk-on component to today. You’ve seen enough volatility in the last six months that it’s hard to determine if we’re going to close up. At this point, it looks very positive.”
Purchases of previously owned U.S. homes rose more than projected in December, helped in part by warmer weather and wrapping up the best year since 2006. The Conference Board’s measure of the economic outlook for the next three to six months fell 0.2 percent in December after rising 0.5 percent the month before, the New York-based research group said Friday.
The Stoxx Europe 600 Index rose 3 percent, rallying 5 percent in two days. The index advanced 2.6 percent in the week after rising the most in a month yesterday following Draghi’s indication that monetary policy will be reviewed as early as March. He reiterated his stance in Davos on Friday.
Emerging Markets
The MSCI Emerging Markets Index climbed 3.2 percent, erasing this week’s losses. The gauge closed at the lowest since May 2009 on Thursday, sending valuations to the cheapest since March 2014.
The Hang Seng China Enterprises Index of mainland shares traded in Hong Kong advanced 3.4 percent. Equity indexes in India, South Africa, South Korea, Poland, Turkey, Hungary, the Czech Republic and the Philippines climbed at least 2 percent. Russia’s Micex Index added 1.8 percent
Commodities
Brent crude rose 7.6 percent to $31.47 a barrel on the ICE Futures Europe exchange. Prices headed for an 12 percent two-day advance, the biggest since the end of August. In New York, West Texas Intermediate crude climbed 7.2 percent to $31.64.
U.S. natural gas headed for a weekly gain as a snow storm approached the eastern U.S. Futures for February rose 1.9 percent this week and were little changed on Friday at $2.130 per million British thermal units.
Currencies
Risk is back in vogue for foreign-exchange traders after European Central Bank President Mario Draghi’s hint of further monetary stimulus helped fuel a rally by currencies from commodity-exporting nations.
The ruble surged from a record low, riding oil’s biggest gain in five months to end a turbulent week that prompted the central bank to signal it stands ready to rein in the widest currency swings in emerging markets. A gauge of exchange rates for 20 developing nations rose 0.9 percent.
The euro and yen were set for their biggest weekly drops this year as traders braced for more stimulus measures after a global market rout strengthened the currencies.
The yen had its biggest weekly drop in more than two months. The currency was down 0.5 percent, extending its weekly decline to 1.1 percent. The euro fell 0.6 percent against the dollar. Monetary easing tends to debase the value of currencies.
Bonds
The 2016 Treasuries rally slowed this week on concern yields that fell to within about half a percentage point from a record low made the market too expensive for some investors. Benchmark 10-year notes were on track for their first two-day losing streak this year, as rebounding stocks and oil prices curbed demand for haven assets.
Spanish government bonds rose for a second day, boosted by the prospect of more ECB debt purchases. Securities from Italy and Portugal also rose after a recovery in oil prices encouraged demand for riskier assets.