Charting the Markets: Draghi Spurs Global Stock Rally
Global stocks are heading for their first two-day gain of 2016 after European Central Bank President Mario Draghi signaled further stimulus may be needed in March. Attention now turns to next week's meeting of the Bank of Japan, when it's likely to delay the timeframe for reaching its inflation target, putting further pressure on Governor Haruhiko Kuroda and his colleagues to ease policy again. Even after the market gains, the MSCI All Country World Index is heading for a fourth straight weekly drop. The gauge on Wednesday came within 0.7 percent of entering a bear market.
Seven weeks after the ECB's December measures underwhelmed investors, sending the euro 3 percent higher against the U.S. dollar, Draghi paved the way for another revamp in stimulus as global risks threaten to derail the euro area's recovery. The euro is heading for the biggest weekly drop of 2016, falling 0.8 percent. Investors now have another seven weeks until March 10, with Draghi emphasizing there are "no limits" to how far officials will go to safeguard their inflation goal. Draghi's rhetoric prompted Goldman Sachs to revive its bearish call for the common currency, less than two months after chief currency strategist Robin Brooks said he "badly misread" the ECB's December meeting. Goldman forecasts the euro will drop to 95 U.S. cents in the next 12 months.
European stocks are heading for the biggest two-day advance since October. The Stoxx Europe 600 Index is on track for its first weekly rise in four. The gauge has lost 8 percent or 785 billion euros ($850 billion) of value this year. Strategists remain bullish on European stocks. They estimate the European benchmark will end the year at 402, a gain of 20 percent from today's levels, helped by ECB stimulus and an improving domestic recovery. European stocks are valued at 14.3 times estimated earnings, about 9 percent lower than their U.S. peers and the cheapest in two years.
Crude oil bounced above $31 after falling as low as $26.19 on Wednesday as volatility rises to the highest in seven years. West Texas Intermediate is on track for its first weekly gain in four, rising 4 percent and rebounding from May 2003 levels. Its two-day, 15 percent rally is the biggest since August. Oil could be the "trade of the year," according to Citigroup, once the market weathers a surge in exports from Iran after the removal of sanctions. Look for a bottom within one to three months, with Brent averaging $52 in the fourth quarter, according to analyst Ivan Szpakowski. Crude has slumped 17 percent in 2016 and 33 percent in the past 12 months.
Mark Barton is a presenter on Bloomberg TV. Follow him on Twitter @markbartontv