Wednesday 17:30 BST. Calmer conditions prevailed in world markets following the volatility of the past few days, as falling US Treasury yields appeared to suggest an easing of nerves about the outlook for Federal Reserve policy.
Equity indices on both sides of the Atlantic recovered a small part of their recent heavy losses, even as oil prices swung violently following the release of the latest US crude inventories data.
Copper hit a fresh three-month high and gold snapped a five-day losing streak as the dollar retreated almost across the board.
By midday in New York, the S&P 500 equity index was up 0.3 per cent at 2,132, following a 2.5 per cent net decline over the previous three sessions.
The benchmark US stock gauge rose as much as 0.7 per cent in early trade, with support coming from a sharp rise for Apple shares. The technology-heavy Nasdaq Composite index outperformed with a 0.7 per cent rise.
The CBOE Vix volatility index, which closed on Tuesday at its highest since late June, was down 6 per cent at 16.78.
In Europe, the Stoxx 600 index slipped less than 0.1 per cent, leaving it 3.4 per cent down over the last five days. Richemont, the luxury goods group, fell 3.9 per cent after issuing a profits warning. The UK’s FTSE 100 index outperformed, albeit with a gain of just 0.1 per cent, helped by a hefty rally for the mining sector.
Energy stocks had a volatile time as oil prices traded in a wide range. Brent, the international crude benchmark, was down another 2.1 per cent at a near two-week low of $46.13 a barrel in late European trade, having earlier hit $47.48.
US crude inventories fell by 559,000 barrels to 510.8m last week, according to the US Energy Information Administration, compared with forecasts for a 4m barrel increase.
The Nikkei 225 in Tokyo fell 0.7 per cent to its lowest close since August 26 as banking stocks were hit by reports that the Bank of Japan could cut interest rates further into negative territory at its policy meeting next week.
“An article in the Nikkei suggesting the BoJ will focus future policy easing with deeper negative rates rather than increased asset purchases has helped fuel renewed yen selling,” said Derek Halpenny, head of global market research at Bank of Tokyo-Mitsubishi UFJ.
“The [BoJ’s] Comprehensive [policy] Assessment will conclude that the net benefits of negative rates outweigh the costs and the governor and deputy governors are unanimous and are therefore likely to gain a majority in support for additional rate cuts.
“The article makes sense to us and we believe the only avenue that remains plausible for further easing is through more negative rates.”
However, after rising as high as ¥103.34 in Asian trade, the dollar surrendered its gains and was down 0.2 per cent against the Japanese currency in late European trade at ¥102.35.
The euro was up 0.5 per cent at $1.1268 and sterling was flat at $1.3197, leaving the dollar index — a measure of the US unit against a basket of peers — down 0.4 per cent at 95.29.
The weaker dollar helped gold rally $5 to $1,323, its first advance in six sessions.
It also lent some support to the base metals complex, along with a renewed sense of optimism about the prospects for the Chinese economy, helping to push copper to a three-week high in London of $4,726 a tonne.
Meanwhile, the two-year Japanese government bond yield touched minus 0.28 per cent after the report, the lowest since late July, before ending flat at minus 0.27 per cent, according to Reuters data.
The dollar’s losses came US Treasury yields also went into retreat after touching multi-month highs on Tuesday.
The 10-year US yield, which moves inversely to the bond’s price, was 5 basis points lower at 1.69 per cent, while the two-year yield, which is more sensitive to perceptions of Fed policy, was 4bp lower at 0.76 per cent.
Markets have been buffeted in recent sessions as participants digest conflicting comments from Fed officials regarding the possibility of the US central bank raising interest rates next week.
Paul Ashworth at Capital Economics said a September move still looked very unlikely.
“It just doesn’t fit [Fed] chair Janet Yellen’s more cautious style,” he said.
“Given the uncertainty surrounding the prospects for a pick-up in GDP growth in the third quarter, particularly in light of the latest deterioration in the survey evidence, it makes a lot more sense to wait until December before pulling the rate trigger.”
But he added: “Next year we anticipate a faster pace of tightening, with up to four 25bp rate hikes.”
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