Stocks move higher despite oil’s retreat – Financial Times

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Chair of the Federal Reserve Janet Yellen testifies before a House Financial Services Committee hearing on the Federal Reserve's semi-annual Monetary Policy Report to Congress in the Rayburn House Office Building in Washington, DC, USA, 10 February 2016. It is the Chairwoman's first appearance before lawmakers since the Fed raised interest rates in December 2015. EPA/JIM LO SCALZO©EPA

Janet Yellen, chair of the US Federal Reserve

Friday 21:00 BST. US and European stocks finished the week on a firm footing even as oil prices fell further away from the $50 a barrel level and the prospect of the Federal Reserve raising interest rates over the summer loomed large.

Indeed, Janet Yellen, Fed chair, said in remarks at a Harvard University event on Friday that higher rates in the next couple of months looked “appropriate” if growth picked up as expected and the labour market continued to improve.

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However, market activity was relatively muted ahead of extended weekend breaks in the US and London.

The S&P 500 equity index rose 0.4 per cent to 2,098, its highest finish in more than a month. The day’s gain left the index up 2.3 per cent for the week.

In Europe, the pan-regional Stoxx 600 rose 0.2 per cent to a five-week peak.

The index rose a hefty 3.4 per cent over the five-day period, also reflecting an easing of concerns about Greece after the country’s creditors earlier this week agreed a tentative deal to reduce its debt mountain.

In Tokyo, the Nikkei 225 rose 0.4 per cent on Friday, giving it a weekly gain of 0.6 per cent.

Oil grabbed plenty of attention this week as prices for both Brent and West Texas Intermediate climbed back above $50 for the first time this year, as bulls took encouragement from recent supply disruptions.

“Once the $50 level was broken, however, the lack of follow-through buying on both WTI and Brent raised a few eyebrows and sellers quickly emerged,” said Ole Hansen, head of commodity strategy at Saxo Bank.

“Signs that producers have stepped up hedging activity further out along the curve has increased the ‘risk’ that these higher prices could see oil production among high-cost producers stabilise — and potentially begin to come back.”

On Friday, Brent settled at $49.32, down 0.5 per cent on the day, but still up 1.3 per cent on the week. WTI was flat at $49.47 and 3.6 per cent up over the five days.

Oil’s retreat came as the dollar resumed its upward momentum, supported by Ms Yellen’s remarks — the latest expression of hawkishness from the Fed that has helped prompt the futures market to dramatically reprice the probability of a rate rise in the next couple of months.

Fed funds futures have moved to price in a more than 50 per cent probability of a move by the end of July, up from just 17 per cent a fortnight ago.

Furthermore, the latest data releases in the US have, on the whole, appeared to suggest the economy is strong enough to withstand higher official borrowing costs.

Notably, housing market data this week pointed to a strong start for the crucial spring season.

On Friday, revised data from the Department of Commerce showed that the US economy grew by 0.8 per cent in the first quarter of 2016, up from the previous estimate of 0.5 per cent but below the 1.4 per cent pace recorded in the last quarter of 2015.

“All in all, first-quarter US GDP confirmed growth slowed in early 2016 but this should prove shortlived given recent encouraging consumer spending indicators,” said Nick Stamenkovic, macro strategist at RIA Capital Markets.

“Indeed the timing of the next Fed rate hike will be heavily dependent on next week’s crucial US employment report and Fed chair Yellen’s speech on June 6 [in Philadelphia].”

The dollar index, a measure of the US currency against a weighted basket of peers, was up 0.6 per cent at a two-month high of 95.76.

The euro was down 0.7 per cent at $1.1110, the lowest since March 16. Dollar/yen was up 0.6 per cent at ¥110.41.

The dollar’s renewed appreciation has taken a heavy toll on the gold price this week.

The precious metal was down another $9 on Friday at $1,210 an ounce, the lowest since the start of April, and $41 down on the week.

Meanwhile, sterling had a positive week as the latest opinion polls lessened some of the concerns in the market about the possibility of the UK exiting the EU.

Sterling/dollar, although down 0.4 per cent on Friday at $1.4607, was up 0.8 per cent over the five days. The pound rose 0.3 per cent versus the euro on Friday at €1.3144, and was 1.7 per cent higher on the week

US Treasury prices fell on Friday, pushing the yield on the two-year note up 4 basis points to 0.91 per cent and that on the 10-year up 3bp to 1.85 per cent.

For the five-day period, the policy-sensitive two-year yield was up just 1bp after rising sharply in the previous week.

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