U.S. equity markets finished the session higher, though well off session highs of more than 1% gains, after prices rallied and dovish comments from the European Central Bank president.
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The Dow Jones Industrial Average was 114 points higher, or 0.73% to 15881. The S&P 500 gained 9 points, or 0.51% to 1868, while the Nasdaq Composite rose a fraction of a point, or 0.01% to 4472.
The energy sector jumped 4% in recent action, followed by telecommunications.
Wall Street and crude oil have moved in lockstep through January as markets have grown increasingly concerned about how long global oversupply will impact industry giants and the broader economy. Since their July 2008 peak, global oil prices have plunged more than 81%. But on Thursday, the market reversed course as crude prices spiked.
“As ever, the feeling is that wherever crude prices move, the indices will follow given a relationship which seems to be stronger than ever,” Joshua Mahony, IG market analyst, said in a note. “The issue here is one of confidence and unfortunately, the only confidence that seems to be evident is that of traders who believe both crude prices and subsequently [stock prices] will go down.”
Traders parsed the latest weekly inventories data from the U.S. Energy Information Administration which showed crude stockpiles rose by 3.98 million barrels to 486 million barrels. That was more than the 2.8 million barrel build Wall Street expected.
Meanwhile, gasoline stockpiles jumped by 4.56 million barrels to 486.54 million barrels, much more than the expectation for a 1.4 million barrel build. Distillate stocks, though, fell by 1.03 million barrels, compared to expectations for a softer 0.1 million barrel decline.
West Texas Intermediate crude gained 4.16% to settle at $29.53 a barrel after plunging as much as 7% in the prior session. Brent, the international benchmark, gained 4.91% to $29.25 a barrel.
Still, despite the optimism, Peter Kenny, independent market strategist said in a note that it’s important for investors to remember that the themes that have driven markets in the first weeks of the new year have not gone away, or been fully priced into the market.
“The complete fall out of the collapse of crude is yet to be felt or seen in corporate results for the energy sector and as a result, the S&P 500,” he said. “The trend lower in equity markets has been so thorough and comprehensive thus far in 2016 that Q4 earnings have had virtually no impact on either single stock or broader market price discovery.”
Meanwhile, traders around the world continued to digest dovish comments by European Central Bank President Mario Draghi who said the ECB’s policy has improved borrowing conditions, though he said inflation was expected to remain at “very low, even negative levels” through late this year. He added that there were “no limits” in policy action to achieve inflation goals and that the central bank has power, determination, and willingness to act. It will review its policy stance at its March meeting.
About an hour before, the central bank announced that it held its benchmark refinancing rate steady at 0.05%, as expected, while its deposit rate remained at -0.30%.
The last time the ECB slashed its refinancing rate was in September 2014.
Aberdeen Asset Management Investment manager Tom Laskey said it’s hard to see how the ECB won’t have to do more at its next meeting.
“The ECB dropped a big hint that we might see more measures from them in March to accompany the next set of staff forecasts. This is vintage Draghi. On the one hand saying the ECB has been doing the right things; and on the other, hinting that more might be on the way…it’s hard to see how the ECB won’t have to do more,” Laskey said.
Draghi’s comments helped scale back losses in U.S. equity futures, and sent European markets sharply higher. The Euro Stoxx 50, which tracks large-cap companies in the eurozone, jumped 2.13%, while the German Dax gained 1.94%, the French CAC 40 added 1.97%, and the UK’s FTSE 100 rose 1.77%.
The moves in both Europe and the U.S. were in sharp contrast to heavy losses and deeply negative sentiment during Wednesday’s trading session. The Dow managed to claw back from sharp losses of 565 points to end down 247 points, as the Nasdaq flirted with positive territory.
Despite Thursday’s reprieve, the broader averages on Wall Street have notched 2016 losses of more than 9% while the Nasdaq was down 10% for the period. Meanwhile, many of the world’s equity markets entered bear-market territory, down 20% from a recent high, including China’s Shanghai Composite, Hong Kong’s Hang Seng, Japan’s Nikkei, the UK’s FTSE 100, and France’s CAC 40.
One of the biggest drivers for the market this year has been concerns over global growth as China, the world’s second-biggest economy, expands at a slower pace and shifts from a manufacturing-based economy. That anxiety has spread to the U.S. where investors worry a global economic slowdown could bleed to the U.S. economy, which has found solid footing after the 2008 financial crisis, and cause a potential recession.
On the U.S. economic calendar, investors digested weekly jobless claims, which showed an unexpected increase. Claims for first-time unemployment benefits rose to 293,000 from a downwardly revised 283,000 the week prior. Wall Street expected claims to fall to 278,000 from an initially reported 284,000.
Meanwhile, the Philadelphia Federal Reserve’s gauge of manufacturing activity in the mid-Atlantic region slipped to -3.5 in January. The reading came in well below expectations for a shallower fall to -5 from the -10.2 reading the month prior. Readings above 0 indicate expansion, while those below point to contraction.