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Oil, Metals Rally as Fading Fed Hike, Keep Dollar Weak

Us Treasury Department 2

Oil and metals advanced as speculation the Federal Reserve will hold off on raising interest rates kept a lid on the dollar. New Zealand’s currency jumped after the central bank refrained from cutting borrowing costs while European stocks and Japanese shares slid.

Crude gained from the highest close in 10 months in its longest streak since April. Metals climbed amid monetary stimulus by the European Central Bank and an improving Chinese trade outlook. The kiwi jumped to the highest level in a year while the won retreated from a five-week high after the Bank of Korea unexpectedly cut key borrowing costs. The Stoxx Europe 600 Index decreased for a second day. Japan’s Topix index dropped while markets in China, Hong Kong and Taiwan were closed.

The dollar is retreating after weak American jobs data pushed out bets on a hike in rates by the Fed. The prospect of a continuation of accommodative central bank policy has buoyed equities along with other risk assets, despite the World Bank cutting its outlook for global growth in 2016, with the European Central Bank embarking on a corporate bond-buying program. A revival in raw materials is also burnishing sentiment, with oil driving the Bloomberg Commodity Index to an eight-month high, back into bull-market territory.

“The weakening dollar and the delay in the Fed’s rate hike are the main factors that are driving prices of commodities,” said Hong Sung Ki, an analyst at Samsung Futures Inc. in Seoul. “Constant production cuts in metals have been made this year, supporting prices but the recent increase in prices has more to do with the dollar’s weakening. The market has been seeing some serious output disruptions in oil.”

In the U.S., traders are pricing in zero chance of an interest-rate increase this month. Futures indicate 58 percent odds that the central bank will raise rates by year-end, down from 74 percent probability at the start of last week, according to data compiled by Bloomberg based on fed fund futures.

Commodities

West Texas Intermediate oil futures in New York rose a fourth straight day, adding 0.6 percent to $51.52 a barrel by 8:11 a.m. in London. Brent crude gained 0.4 percent to $52.70 a barrel.

U.S. oil stockpiles dropped by 3.23 million barrels last week to the lowest level in two months, the U.S. Energy Information Administration said on Wednesday, damping concern over a global glut in the commodity. A fresh wildfire also prompted Canadian oil producers Cenovus Energy Inc. and Canadian Natural Resources Ltd. to shut production just as output was being restored in other parts of Alberta.

“The main driver is likely to be the USD retreat amid lower or zero expectations of a June hike,” Bernard Aw, a strategist at IG Asia Pte., said by e-mail. “For certain commodities, such as oil, a tightening supply has helped boosted prices. Signs of stabilisation in China, judging from latest trade figures, are also supportive of commodities.”

Copper for three-month delivery climbed for a second day, adding 0.7 percent in London to $4,611 a dry metric ton. Zinc climbed as much as 1.6 percent to $2,096 a metric ton on the London Metal Exchange, the highest since July 2015. Nickel rose 1 percent to $9,050 after a 4.4 percent gain on Wednesday, the most since Feb. 15.

Silver extended its surge, rising 0.6 percent to build on last session’s 4 percent jump, while gold held near a three-week high on prospects that central bank policies will continue to be accommodative.

Currencies

The Bloomberg Dollar Spot Index, a gauge of the greenback against 10 major peers, slipped 0.1 percent, following a two-day drop.

The Japanese yen added 0.3 percent to 106.72 per dollar after gaining 0.5 percent over the previous two sessions. The kiwi soared as much as 2 percent to 71.48 U.S. cents, its strongest level since June 11 last year, after the RBNZ refrained from cutting rates and said it expects inflation to accelerate. The Malaysian ringgit and Thai baht were up at least 0.2 percent.

The won pared an earlier advance of 0.5 percent to trade little changed after the BOK reduced the seven-day repurchase rate to 1.25 percent. All but one of the 18 economists surveyed by Bloomberg predicted the bank would keep the rate at 1.5 percent.

Stocks

The Stoxx Europe 600 Index slid 0.4 percent, with losses led by telecom shares. The MSCI Asia Pacific Index lost 0.5 percent, with the Topix tumbling 1 percent, led lower by banks and exporter stocks. Asian energy producers climbed, however, with a sub-index of the shares up 0.5 percent.

“Monetary policy remains accommodative globally and expectations for a rate hike in the U.S. has been pushed back,” James Woods, an analyst at Rivkin Securities in Sydney, said by phone. “That should be supportive of equities. However, a delay in the Fed rate hike is strengthening the yen, providing a headwind for Japan.”

The Kospi index in Seoul lost 0.1 percent while New Zealand’s S&P/NZX 50 Index declined 0.3 percent.

Futures on the S&P 500 slipped 0.2 percent following the U.S. benchmark’s 0.3 percent climb to its highest close since July. Industrial companies and mining stocks drove the increase, which put the index just 0.6 percent below a record set on May 21, 2015.

MSCI’s All-Country World Index rose a fifth straight day on Wednesday, capping its longest rally this month. It was down 0.2 percent on Thursday.

Deflationary pressures in China’s industries eased further in May, while consumer price gains continued to be subdued enough to offer the central bank scope for more easing if needed. Amid a drive by the Communist Party leadership to cut excess capacity, producer prices fell 2.8 percent, the least since late 2014 and less than the 3.2 percent decline economists had estimated in a Bloomberg survey. The consumer price index rose 2 percent from a year earlier, lower than the median forecast of 2.2 percent.

Source: Bloomberg