Stocks Rally With Oil as Don’t Fear the Fed Is New Market Mantra

Global equities rose to a two-week high amid increasing investor optimism that the world economy can withstand higher U.S. interest rates. Oil advanced and gold fell amid a retreat in the dollar.

The MSCI All Country World Index climbed for a second day, European equities jumped, and futures signaled a higher opening for U.S. shares. Emerging-market stocks rose the most in six weeks, while South Korea’s won led currencies higher even as China set the yuan’s reference rate at the weakest level since 2011. Crude rallied above $49 a barrel as gold slid for a sixth day. Greek bonds increased, pushing the 10-year yield below 7 percent for the first time since November, after its creditors agreed to release bailout funds. The cost of insuring corporate debt against default fell to the lowest in almost a month.

Improving confidence in financial markets is tempering anxiety over the Federal Reserve’s plans to raise U.S. interest rates, potentially as soon as next month. Recent polls show growing support for the U.K. to remain in the European Union, the rally in commodities is damping the risk of deflation, and a measure of economic surprises in the world’s largest economies hit its highest level this year. Still, faith in global growth prospects has been easily shaken, with global equities failing to make any gains in 2016.

“U.S. data is supporting the view that if we don’t see stellar growth, at least we don’t see a recession, and that’s a good thing,” said Michael Woischneck, who oversees about 300 million euros ($335 million) at Lampe Asset Management in Dusseldorf, Germany. “If the Fed has the chance to hike again then it should take this opportunity as the market is very prepared. We also have a deal for Greece that has helped perceptions change in the European market.”

Stocks

The Stoxx Europe 600 Index added 1.1 percent at 11:32 a.m. in London, with almost all industry groups climbing. Carmakers and banks posted the biggest gains.

The equity measure closed above its 50-day moving average on Tuesday for the first time after slipping below it earlier this month. That sends a short-term bullish signal in technical analysis, according to Saxo Bank A/S trader Pierre Martin.

UniCredit SpA rose to a two-week high on Wednesday after Italy’s biggest bank announced Chief Executive Officer Federico Ghizzoni will step down. Novo Nordisk A/S gained 2.5 percent after its once-a-day combination drug for diabetes won unanimous backing from a group of advisers to the U.S. Food and Drug Administration. Marks & Spencer Group Plc tumbled 7.8 percent after saying profits will be hurt by investments in a turnaround plan.

The MSCI Emerging Markets Index rose 1.6 percent, with technology and energy shares leading the advance.

The Hang Seng China Enterprises Index of mainland stocks listed in Hong Kong surged 2.8 percent, the most in more than a month. Benchmark gauges in South Korea, Taiwan, the Philippines, Russia and Dubai increased at least 1 percent.

Futures on the S&P 500 added 0.4 percent, indicating U.S. equities will extend gains after rising 1.4 percent on Tuesday. Investors will look to data on services output and house prices due Wednesday for signs of the health of the world’s biggest economy amid increasing bets that the Fed is confident enough to raise rates.

Traders are now pricing in a one-in-three chance of higher borrowing costs in June. That’s up from 4 percent last Monday. July is the first month with more than even odds for a rate hike. Fed Chair Janet Yellen is scheduled to speak on Friday after European markets close.

Currencies

The Bloomberg Dollar Spot Index lost less than 0.1 percent, heading for a 3.5 percent monthly advance. The yen was little changed at about 110 versus the greenback after Goldman Sachs Group Inc. predicted the Japanese currency would slide 12 percent by this time next year.

The MSCI Emerging Markets Currency Index climbed 0.1 percent. The won rose 0.9 percent, boosted by optimism that strength in the U.S. economy will shore up demand for South Korean exports. Malaysia’s ringgit strengthened 0.5 percent and Russia’s ruble gained for a second day to a one-week high.

China’s central bank weakened its currency fixing by 0.3 percent to 6.5693 per dollar. The yuan in Hong Kong was little changed at 6.5650 and the onshore rate was down 0.05 percent to 6.5620.

Forwards on the naira soared as traders increased bets on Nigeria’s currency weakening, with rates on three-month contracts jumping 16 percent to 288 per dollar. The central bank voted to allow “greater flexibility” in the foreign-exchange market on Tuesday, signaling policy makers may abandon a currency peg they’ve held for 15 months.

Commodities

Oil extended gains in New York from the highest closing price in seven months after U.S. industry data showed crude stockpiles declined, easing a glut. Inventories dropped by 5.14 million barrels last week, the American Petroleum Institute was said to report. Data from the Energy Information Administration Wednesday is forecast to show supplies fell.

West Texas Intermediate rose 1.1 percent to $49.15 a barrel and Brent added 1.2 percent to $49.21. WTI closed at a premium to Brent Tuesday for the first time in almost two weeks.

Gold dropped to the lowest level in almost seven weeks. Bullion for immediate delivery fell 0.5 percent to $1,220.84 an ounce. Most industrial metals declined, with nickel dropping 0.4 percent and aluminum losing 0.6 percent. Copper rose 0.4 percent to $4,619 a metric ton.

Bonds

Greece’s bonds advanced, pushing the 10-year yield below 7 percent for the first time since November. Euro-area finance ministers and the International Monetary Fund reached an agreement that will allow for the release of 10.3 billion euros of aid to the Mediterranean nation and have committed to taking steps to relieve the burden of the its 321 billion euros of debt.

Portuguese bonds also rose, while Spanish and Italian bonds outperformed their German counterparts.

The yield on 10-year U.S. Treasuries was little changed at 1.86 percent. The U.S. is selling $34 billion of five-year securities on Wednesday after investors snapped up a $26 billion auction of two-year notes on Tuesday, leaving primary dealers with the lowest award at a sale of the debt in data going back to 2003.

“The Treasury yield could end up a little bit above 2 percent” as the Fed raises rates, said Stephen Roberts, an economist at Laminar Group Pty, a Melbourne-based fixed-income adviser. “The U.S., of developed economies, has had the best of the economic recovery we’ve had since the global financial crisis.”

The Markit iTraxx Europe Index of credit-default swaps on investment-grade companies fell for the fourth day, the longest run in about six weeks. The gauge declined two basis points to 73 basis points. A measure of swaps on junk-rated companies dropped 11 basis points to 310 basis points.

--With assistance from Wes Goodman Emma O'Brien James Herron Manisha Jha Stephen Kirkland Neil Denslow and David Goodman To contact the reporters on this story: James Regan in Hong Kong at jregan19@bloomberg.net, Alan Soughley in Frankfurt at asoughley@bloomberg.net. To contact the editors responsible for this story: Paul Dobson at pdobson2@bloomberg.net.