Charting the Markets: Investors Await Central Bank Guidance
Global stocks are gaining for a third day as investors look to support from central banks in a week the Federal Reserve, Bank of Japan, Reserve Bank of New Zealand and Bank of Russia all hold policy meetings. European Central Bank President Mario Draghi got the ball rolling on Thursday when he signaled further stimulus may be necessary in March. His words helped spur the biggest two-day advance in the MSCI All Country World Index since October. Asian stocks are heading for the best two-day rally in more than four years. The Stoxx Europe 600 Index achieved that feat on Friday.
Emerging-market stocks are mirroring the performance of their European and Asian peers and set for the strongest two-day surge since 2011. The MSCI Emerging Markets Index has been battered in 2016 by China's deteriorating economy, a slump in commodity prices and the prospect of higher U.S. interest rates. That means this week's Fed meeting takes on added significance, with investors looking for clues the central bank is retreating from its base case of four rate increases in 2016. The MSCI Emerging Markets Index has dropped 10 percent in 2016 and is heading for the 4th consecutive annual decline, the longest on record.
Crude oil fell after the biggest two-day surge in more than seven years. West Texas Intermediate jumped 21 percent on Thursday and Friday and has rebounded $5 from a 12-year low of $26.19 on Wednesday. Last week's gain was the first in four. It came as hedge funds cut their bearish bets on oil ahead of the rally, with speculators' short position shrinking 8.4 percent in the week ended Jan.19. One man who correctly predicted the slump in prices says oil will finish the year higher. Pierre Andurand is the founder of $615 million Andurand Capital Management. He forecasts oil will probably rise to $50 a barrel this year and $70 in 2017. Crude has slumped 14 percent in 2016.
Gold remains the best performing metal on the Bloomberg Commodity Index, which measures 22 materials, in 2016. It's risen 4 percent this year, rebounding from three straight annual declines. Hedge funds more than doubled their net-long position in bullion last week, just three weeks after they were the most bearish ever. Gold's allure dimmed as the Fed tightened policy for the first time in more than a decade. A more dovish Fed this week may further boost gold's attraction. The odds of U.S. rate increase in March is 27 percent, compared with 51 percent at the end of December, according to Bloomberg data.
Mark Barton is a presenter on Bloomberg TV. Follow him on Twitter @markbartontv