On 21 January, 2016 – The price of oil climbed taking stocks in Europe and the US with it

Asian stocks continued to retreat but shares in Europe and the US rallied as oil prices recorded their biggest gain this year and ECB President Mario Draghi raised hopes of more stimulus for the Eurozone. 

United States

US markets advanced Thursday, led by gains in energy companies as the prices of crude oil and natural gas recovered from steep plunges the day before. Telecom stocks also rose after Verizon reported strong fourth quarter results. The Dow Jones industrials were up 0.7 percent, the S&P gained 0.5 percent but the Nasdaq was virtually unchanged (up 0.37 point).

Oil and gas stocks recovered after a plunge a day earlier. Consol Energy and Range Resources shares jumped. Southwestern Energy and Kinder Morgan advanced. Union Pacific retreated after its fourth quarter profit and revenue fell far short of estimates. The chief executive said the uncertainty in energy and commodity markets and the strong US dollar would continue to affect the railroad’s business this year. Telecom stocks rose after Verizon reported better than expected results in the fourth quarter. AT&T shares also were up. Tenet Healthcare and HCA Holdings advanced. Airline stocks rose as lower fuel costs increased their profits. Southwest Airlines reported a record profit, almost triple its net income from a year ago, as fuel costs fell by almost a third. United Continental Holdings also said its profit spiked as jet fuel became much cheaper. Cybersecurity company FireEye climbed after the company forecast strong growth in orders. The company also said it had acquired iSight Partners, which provides information on cybersecurity threats for businesses.

ECB President Mario Draghi said Thursday that the Bank would consider using more stimulus measures at its next meeting in March. The ECB has been buying government backed bonds, and the yields on 10-year Treasury notes backed by European countries dropped after Mr Draghi’s remarks.

These data reflect observations at 4:00 PM US ET. Gold at the afternoon London fixing was down US$5.25 to US$1,096.50. Copper futures were up 1.8 percent to US$1.99. WTI spot crude was up US$1.40 to US$29.75. Dated Brent spot crude was up US$1.64 to US$29.52. The US dollar was up against the yen and Swiss franc. It was virtually unchanged against the euro. The currency declined against the pound and the Canadian and Australian dollars. The Dollar Index was down 0.1 percent. The yield on US Treasury 30 year bond was up 4 basis points to 2.80 percent while the yield on the 10 year note added 3 basis points to 2.02 percent.

Europe

Stocks rebounded from Wednesday’s losses and ended the day with healthy gains. The markets positive behavior can be attributed to some dovish comments from European Central Bank President Mario Draghi. A reversal in crude oil prices also added to the positive mood, as prices attempted to stabilize after yesterday's sharp drop. The FTSE was up 1.8 percent, the CAC gained 2.0 percent, the DAX advanced 1.9 percent and the SMI added 0.9 percent.

The ECB governing council left its key interest rates unchanged. The benchmark refi rate stays at 0.05 percent, the deposit rate at minus 0.30 percent and the marginal lending rate at 0.30 percent. After the conclusion of the general council meeting, Mr Draghi said that there were no limits on what policy tools the Bank can deploy to achieve its inflation goal and to boost euro area growth. He hinted that more stimulus measures may come in March as the downside risks such as global uncertainty, market volatility and geopolitics have increased. Further, he said euro area inflation dynamics continue to be weaker than expected. Responding to reporters' questions, Draghi said the bank has several policy tools at its disposal and there was "no limit" as to what it can do in achieving its inflation and growth objectives. He also said that the ECB was willing and determined to use its policy tools when needed.

Deutsche Bank dropped after the lender forecast a fourth quarter loss of €2.1 billion, weighed down by additional litigation and restructuring charges. Both RWE and E.ON advanced. Automakers Volkswagen, Daimler, BMW, Peugeot and Renault gained. In Paris, Rémy Cointreau rallied after the drinks group confirmed its objective of delivering positive growth in current operating profit for the 2015-16 financial year. Both Technip and Total gained. In London, Pearson soared after the education publisher unveiled a restructuring plan that includes cutting 10 percent of its workforce. Barclays was up after it was said it is set to exit investment banking operations, with plans to eliminate more than 1,000 jobs worldwide. SABMiller was up after reporting a better than expected 7 percent increase in underlying sales for the third quarter. Royal Mail advanced after it said that trading in the nine months ended 27 December 2015 fully met its expectations. Glencore, BHP Billiton, Anglo American, Rio Tinto and Antofagasta all climbed.

Asia Pacific

Asian stocks tumbled once again on Thursday. The yen strengthened sending Japanese shares lower while Chinese shares succumbed to another late afternoon selloff.

The Shanghai Composite plummeted 3.2 percent after a late-day selloff on concerns over capital outflows and economic slowdown. The People’s Bank of China decided to inject over 600 billion yuan ($91.19 billion) into the financial system ahead of the Lunar New Year holidays, dashing hopes of a cut in the reserve requirement ratio for banks. The Hang Seng sank 1.8 percent in choppy trading after losing almost 4 percent on Wednesday.

The Nikkei ended a choppy session sharply lower, extending steep losses from the previous session. The index dropped 2.4 percent after losing 3.7 percent the previous day. The Nikkei was 1.9 percent higher in early trading before succumbing to selling pressure on a firmer yen after Bank of Japan (BoJ) governor Haruhiko Kuroda maintained his optimism on the economy and said inflation is on a broad uptrend. Exporters including Canon, Toyota Motor, Honda Motor and Mazda Motor declined across the board. Energy explorer Inpex Corp and JX Holdings dropped. Sharp soared after the Wall Street Journal said Taiwan's Foxconn has offered about ¥625 billion to take over the struggling electronics maker.

Australian shares rebounded on fund buying. The S&P/ASX and the All Ordinaries both rose 0.4 percent. Oil & gas producer Santos rallied after crude prices rebounded in early Asian deals. Origin Energy climbed after reassuring investors about its finances. Woodside Petroleum retreated after flagging write-downs of up to $1.2 billion. Copper and gold producer OZ Minerals soared after saying it expects a strong performance in 2016. BHP Billiton gave up early gains to end marginally lower while Fortescue Metals Group declined and Rio Tinto advanced. Banks ended mostly lower.

The Kospi closed 0.3 percent lower after swinging between gains and losses before closing modestly lower on foreign fund selling. The Sensex was down 0.4 percent.

Looking forward

January flash manufacturing PMIs will be reported for Japan, the Eurozone, France, Germany and the US. The UK and Canada post retail sales for December and November respectively. Canada also posts consumer prices. The US releases December existing home sales and leading indicators.

Please remember, the value of investments and the income from them can do down as well as up. Funds that invest in overseas markets may be subject to currency fluctuations. Investments in small and emerging markets can be more volatile than other overseas markets. Reference in this document to specific securities should not be construed as a recommendation to buy or sell these securities, but is included for the purposes of illustration only.