|06 January, 2019

Sunday outlook: Oil prices, global markets make gains on signs of trade progress, improving U.S. jobs market

Stock markets in the U.S rebound strongly on Friday due to improved jobs numbers and dovish comments from the Federal Reserve chairman. More commentary on global markets, oil prices, currencies and gold.

People walk on Wall Street in front of the New York Stock Exchange (NYSE) in New York, U.S., February 6, 2018.

People walk on Wall Street in front of the New York Stock Exchange (NYSE) in New York, U.S., February 6, 2018.

REUTERS/Brendan McDermid
  • Equity markets rebound on positive U.S. jobs report
  • Oil prices make gains as trade fears ease
  • Middle East markets mostly make gains on Thursday
  • Gold prices lower as investors move into riskier assets

Oil prices

Oil prices finished the day two percent higher on Friday on the back of more positive sentiment on trade talks between the United States and China, but gains were capped by a report showing a significant build-up in inventories in the U.S.

Brent crude futures closed 1.98 percent higher at $57.06 per barrel, while U.S West Texas Intermediate crude futures closed up by 1.85 percent, closing at $47.96 per barrel.

Despite a weak finish to 2018 over concerns of a slowing global economy, oil markets have started 2019 positively, although gains made on Friday were limited by a report from the U.S. Energy Administration which showed stocks had sharply increased in the week ending December 28, with gasoline stocks up 6.9 million barrels and distillate stockpiles growing by 9.5 million barrels, compared to a forecast of just 2 million barrels, according to Reuters.

Yet one factor that could potentially weaken sentiment was a statement from Iran's deputy oil minister for trade and international affairs, Hossein Zamania, who said that despite the sanctions imposed on the country by the U.S., the number of potential buyers of its oil "has significantly increased due to a competitive market, greed and pursuit of more profit," Zamania said in comments carried by the oil ministry's news agency, Shana, Reuters reported on Saturday.


Global markets

Stock markets in the U.S. swung sharply higher on Friday following a positive report on American job numbers and an indication from U.S. Federal Reserve chairman Jerome Powell that it would take heed of signals regarding the state of the economy.

The S&P 500 Index finished the day more than 3.4 percent higher, while the Dow Jones Industrial Average gained 3.29 percent. The Nasdaq Composite index also rallied strongly following its fall on Thursday on weaker earnings from Apple, with the index closing up 4.26 percent on Friday.

James Athey, a senior investment manager at Aberdeen Standard Investments, told Reuters that Powell was "saying the right things: that the Fed is prepared to shift, that it’s listening carefully, that it’s sensitive to the messages the market is sending.”

However, Eric Freedman, chief investment officer at U.S. Bank Wealth Management in Minneapolis, also told the agency that he expects more volatility ahead.

“While days like today feel good, we still anticipate more economic weakness ahead and expect a continued back-and-forth grind in markets,” Freedman said.

The positivity in U.S. markets was also reflected in Europe, where the stronger U.S. jobs data and hopes of a positive outcome in the ongoing U.S.-China trade talks led to markets posting their single biggest daily gain for over two years. The STOXX 600 index closed 2.8 percent higher, and London's FTSE 100 index was up 2.2 percent.


Middle East markets

Following on from its performance as the Gulf's best-performing stock market in 2018, the Qatar stock market finished 0.65 percent higher on Thursday, with Qatar General Insurance being the top gainer, finishing the session 9.78 percent higher at 50.5 Qatari riyals ($13.88) per share.

Real estate firm Ezdan Holding (up 5 percent) and investment group Aamal (2.94 percent) were the other major gainers, while petrochemicals firm Mesaieed dropped 7.3 percent after main shareholder Qatar Petroleum announced it had completed an issue of free incentive shares in the company, which could help to boost the stock's liquidity.

The Abu Dhabi index finished 0.65 percent higher, with the main gainers being building materials company Arkan (up nearly 9 percent) and Gulf Pharmaceutical Industries, Julphar (up 6.67 percent), which announced plans at the end of 2018 to introduce a wearable insulin device to the GCC, and to sell its Juslin insulin product in Pakistan.

The Dubai market edged up 0.22 percent on Thursday. Salama Insurance, which has witnessed buying support from Abu Dhabi Financial Group's Goldilocks Investment Fund in recent weeks, was one of several gainers, with its shares climbing by 7 percent.

Other insurers, including Dubai Islamic Insurance and Reinsurance (up 13.35 percent) and Dar Takaful (up 9.4 percent), also reported strong gains, as did Cairo-based, Nasdaq Dubai-listed contractor Orascom Construction (up 10 percent) and Dubai-based fit-out contractor Depa (up 6 percent). Depa announced the award of new shares to several members of its management team, including CEO Hamish Tyrwhitt, CFO Steven Salo and chief legal officer David Holiday, under a long-term incentive plan linked to the company's performance.

Elsewhere in the Gulf, the Kuwait Premier Market finished 0.67 percent higher and Saudi Arabia's market gained 0.51 percent, but the Bahrain Bourse fell by and the Muscat Securities Market index dropped 0.61 percent.

Currencies

Federal Reserve chairman Powell's more dovish statement on the U.S. economy was interpreted by currency traders as an indication that it was not necessarily wedded to continuing its recent policy of gradually raising interest rates.

The Fed raised rates by 0.25 percent four times in 2018 and was predicted to raise rates at least twice more this year, at the same time as continuing its policy of quantitative tightening, which has seen it run-off assets worth around $50 billion per month.

In his speech to the the American Economic Association on Friday, Powell said that the Fed would be "patient as we watch to see how the economy evolves”, according to Reuters, adding that its policy of hiking interest rates was not present and that the programme could be paused, if needed.

As a result, the dollar retreated against the euro on Friday, giving up earlier gains it had made on the back of the strong U.S. jobs report. The euro finished 0.09 percent higher against the dollar at $1.1401, although it finished 0.7 percent higher against the safe haven Japanese yen, which had been making gains against the dollar for several previous sessions due to fears over global growth prospects.

“Powell’s comments that the Fed is prepared to alter policy expectations quickly and flexibly are weighing on the U.S. dollar and giving risk sentiment a boost,” Eric Viloria, FX strategist at Credit Agricole in New York, told Reuters.


Precious metals

The bounce in equities markets meant there was a retreat from safe haven assets and spot gold prices, which hit a six-month peak on Thursday, retreated by 0.7 percent on Friday to close at $1,284.83. Gold futures were trading down 0.72 percent at $1.282.60.

(Writing by Michael Fahy; Editing by Shane McGinley)
(michael.fahy@refinitiv.com)

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