Oil was headed for its biggest weekly jump since March amid speculation major producers will act to freeze output. The dollar pared its loss for the week, Asian stocks extended their retreat from a one-year high and European equity index futures were little changed.
U.S. crude is back in a bull market and rallying above $48 a barrel, less than three weeks after it sank into a bear market. Gold lost ground for the first time this week as Bloomberg’s dollar index rose from a three-month low, supported by a technical gauge that indicated a turnaround was likely. The yen returned to the weak side of the 100 per dollar level and South Korea’s won slid to this month’s low. The MSCI Asia Pacific Index of shares fell for the fourth time in five days.
Commodities got a boost this week and the dollar tracked lower as minutes of the Federal Reserve’s last policy meeting kept a lid on speculation that U.S. interest rates will be raised in 2016, even as a more hawkish tone was evident in comments made by regional Fed chiefs including New York’s William Dudley. A rate hike has the potential to fuel volatility in financial markets as central banks in Asia and Europe loosen monetary policies in a bid to revive their economies.
“The Fed could potentially move in December, but with uncertainty about U.S. inflation and monetary conditions around the rest of the world, the pace will be extremely measured,” said Roger Bridges, chief global strategist for interest rates and currencies at Nikko Asset Management’s Australian unit in Sydney.
The next signal on the Fed’s thinking isn’t due till Aug. 26 when Fed Chair Janet Yellen speaks at a meeting of global policy makers in Jackson Hole, Wyoming. The probability of a borrowing costs being raised this year stands at 47%, Fed funds futures show.
The Bloomberg Commodity Index was down 0.2% as of 7:05 a.m. London time, trimming this week’s jump to 3%.
West Texas Intermediate crude rose 0.8% to $48.59 a barrel in New York, after surging 16% over the last six sessions. Russia indicated this week that it is open to discussing an output freeze after Saudi Arabia’s energy minister said that informal talks among major producers next month may lead to action to stabilize the market. A deal to cap production was proposed in February but a meeting in April ended with no accord.
“The catalyst for this run was the Saudi statement on its preparedness to discuss initiatives to stabilize the price,” said Ric Spooner, chief analyst at CMC Markets in Sydney. “Oil is now getting to an interesting level, approaching the high end of the range. If WTI gets into the low $50s, we may see the current momentum start to sag a bit.”
The dollar’s rebound pushed metals prices lower, with gold falling 0.3%. Zinc fell 0.5%, retreating from a 15-month high, as nickel slipped 0.6%. Moody’s Investors Service raised its outlook for the global base-metals industry, saying prices for aluminum, copper, nickel and zinc are unlikely to deteriorate further in the medium term as economic stimulus is helping stabilize views on China, the biggest user.
The Bloomberg Dollar Spot Index rose 0.4%, trimming this week’s loss to 1%. The measure’s 14-day relative strength index sank to 30 on Thursday, a threshold that signals to some investors that declines have been too fast and a rebound is likely. While the U.S. central bank’s minutes showed Wednesday that officials were split on the need for an interest-rate hike in July, New York Fed chief Dudley said the previous day that the market was underestimating the likelihood of an increase.
“The Fed’s apparent lack of urgency to raise rates is encouraging expectations of further dollar declines,” said Sean Callow, a senior foreign-exchange strategist at Westpac Banking Corp. in Sydney. “Today is probably just a blip in the dollar’s lousy August so far.”
The yen weakened 0.4% to 100.24 per dollar, paring its weekly gain to 1.1%. The currency has strengthened 20% this year and Japan’s Vice Finance Minister Masatsugu Asakawa said on Thursday that policy makers are prepared to take action if speculative trading is evident.
The won dropped as much as 1.2% to 1,120.68 per dollar, while Indonesia’s rupiah fell 0.1%. Five out of nine economists surveyed by Bloomberg forecast Indonesia’s central bank will lower its benchmark interest rate to 6.25% from 6.5% at a policy review on Friday. Four forecast no change.
The MSCI Asia Pacific Index fell 0.1% and has lost 0.6% since reaching a one-year high at the end of last week. Japan’s Topix index gained 0.4%, set for a weekly loss of 2.1%, and Hong Kong’s Hang Seng Index was down 0.3% after ending the last session at its highest since October.
“The market lacks momentum,” said Margaret Yang, an analyst at CMC Markets in Singapore. “The market has been driven by liquidity arising from loose monetary policies by central banks around the world, rather than improving economic fundamentals. Besides the rally in oil, there’s nothing that could push share prices higher.”
S&P 500 Index futures were little changed after the U.S. benchmark advanced 0.2% in the last session to close just shy of an all-time high. Contracts on the Euro Stoxx 50 Index were also steady.
U.S. Treasuries due in a decade yielded 1.54%, little changed on the day and up three basis points for the week. The two-year note yield, among the maturities most sensitive to the outlook for Fed policy, was little changed this week at 0.71%.