- ASX posts weekly gain as BHP rallies
- Oil rally: Is this the turning point?
- Almost out of ammo, central bankers pulled back in
Global stocks surged the most in 3 1/2 years, as US equities joined a rally that pushed oil to its biggest rally in seven years on speculation that central banks will expand stimulus measures to counter the turmoil in financial markets. Safe-haven assets from US Treasuries to gold retreated.
MSCI's world equity index climbed 2.6 percent as benchmarks from Asia to Europe, Australia and America rebounded from one of the worst starts to a year on record.
The Standard & Poor's 500 Index capped its best day in six weeks. European shares enjoyed the biggest two-day rally since 2011, while the euro fell to a two-week low on the European Central Bank's signal it may bolster economic support. Asian stocks climbed the most since September on speculation Japan and China may also take steps to calm markets.
In Australia, the sharemarket finished the week in positive territory as the bounce in commodity prices sparked a 7.4 per cent recovery rally in BHP Billiton. The benchmark ASX200 closed 1.1 per cent higher on Friday and was up 0.5 per cent for the week at 4916, while the All Ordinaries put on 1 per cent on Friday and 0.4 per cent for the week to close at 4969.6.
The turnaround in sentiment came amid signs central banks may be prepared to act after $US7.8 trillion ($11.1 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 $US10 billion at Ashburton Investments. "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."
Oil prices rally
Oil rallied, capping the biggest two-day advance in more than seven years after a slump to a 12-year low prompted some investors to buy back record bearish bets.
Front-month futures jumped 21 per cent after the February contract expired Wednesday at $US26.55 a barrel, the lowest settlement since 2003. Speculators this month had made the biggest bets for falling US crude amid concern that turmoil in China's markets would curb fuel demand at a time when fresh exports from Iran exacerbate a global glut.
West Texas Intermediate for March delivery gained 9 per cent to $US32.19 a barrel on the New York Mercantile Exchange. The 21 per cent gain in two days is the most since September 2008. The volume of all futures traded was 36 per cent above the 100-day average.
'Warpath against weakness'
The S&P 500 jumped 2 per cent at 4pm in New York, erasing its loss for the week. The index pared its drop in 2016 to 6.8 per cent, and it remains 11 per cent below its all-time high set in May. The Dow Jones Industrial Average climbed 1.3 per cent, 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."
The Stoxx Europe 600 Index rose 3 per cent, rallying 5 per cent in two days. The index advanced 2.6 per cent 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.
The MSCI Emerging Markets Index climbed 3.3 per cent, 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 per cent. Russia's Micex Index added 1.8 per cent.
Risk is back in vogue for foreign-exchange traders after 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 gain 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.
The euro and yen were set for their biggest weekly drops this year as traders braced for more stimulus measures after a global rout strengthened currencies. Monetary easing tends to debase the value of currencies.