Oil surged the most since April on speculation that OPEC agreed to cut production for the first time in eight years. Stocks climbed and the dollar fell.
Crude surged 5.3 percent to $47.05 a barrel in New York on reports that the group that supplies about 40 percent of the world’s oil reached an agreement at an informal meeting in Algiers. The rally spurred gains in U.S. stocks as companies from Exxon Mobil to Chevron soared, while the U.S. currency erased gains. Treasuries were little changed as traders monitored remarks from Federal Reserve officials.
Global markets were taken aback by the reports on OPEC’s deal after earlier speculation that Saudi Arabia and rival Iran expected no accord to come from Wednesday’s talks. The group will drop production to 32.5 million barrels a day, nearly 750,000 barrels a day lower from what it pumped in August, according a delegate briefed on the matter.
“The market is rewarding the show of cooperation,” said John Kilduff, a partner at Again Capital, a New York hedge fund focused on energy. “Their acts haven’t matched their words so far but the market is giving them the benefit of the doubt.”
American markets struggled to find direction earlier Wednesday with stocks, bonds and the dollar swinging between gains and losses as traders assessed comments from Fed officials for clues on the timing of interest-rate hikes.
Chair Janet Yellen said Wednesday that the majority of the central bank’s policy-setting group sees a rate hike as likely needed this year. Meanwhile, Chicago Fed President Charles Evans said an extended period of low rates will leave policy makers with less room to navigate future shocks and reiterated that the “lower-for-longer” view is taking hold among businesses and investors.
Meanwhile, investors are looking for signs that the economy is strengthening and awaiting the next earnings season, which will kick off in about two weeks. A report today showed orders for durable goods were little changed in August, while shipments of capital equipment declined for a fourth straight month, indicating lingering weakness in manufacturing. A revised reading on second-quarter growth, pending home sales as well as measures of personal income and spending are due later this week.
Oil jumped as much as 6.2 percent in New York. Mossa Elkony, the head of Libya’s delegation, said “it seems there’ll be an agreement.” Algeria proposed a 796,000 barrel-a-day cut for OPEC output, according to a document seen by Bloomberg. Prices fell earlier as a government report showed a U.S. gasoline supply gain.
“The OPEC talks are overshadowing the fundamentals,” said Matt Sallee, who helps manage $15 billion in oil-related assets at Tortoise Capital Advisors in Leawood, Kansas.
Tin climbed as inventories of the metal tracked by the London Metal Exchange continued to fall. Copper and aluminum also advanced. Gold retreated.
The S&P 500 rose 0.4 percent to 2,167.63 at 3:24 p.m. in New York, erasing a 0.4 percent slide. It topped near its average price during the past 50 days. It has churned between that level and the 100-day moving average for 12 of the past 13 sessions, the most since 1992. Oil and gas producers in the gauge were on track for the biggest jump since January. The afternoon rally in energy overshadowed a 4.4 percent drop in Nike and AT&T ‘s 1.8 percent retreat that dragged down phone companies.
“While the correlation between oil and stocks has loosened, it’s still dictated some trading this week,” said Matt Maley, an equity strategist in New York at Miller Tabak & Co. “We’re about to head back into earnings season, when we’ll see if stocks can get the pick-up the market’s been hoping for.”
Shares in emerging markets also rebounded after oil’s surge. SABMiller helped lift South Africa’s benchmark after investors approved a takeover by Anheuser-Busch InBev. Saudi Arabia stocks posted the steepest two-day slump since January amid concern austerity measures will curb growth, while people familiar with the matter said the kingdom’s first international bond may be delayed.
The Stoxx Europe 600 index climbed 0.7 percent as Deutsche Bank rebounded from a record low. Germany’s DAX index and Italy’s FTSE MIB index snapped a three-day losing streak, while automakers and banks boosted France’s CAC 40 index.
The Bloomberg Dollar Spot index, which tracks the currency against 10 major peers, fell less than 0.1 percent. The dollar is down about 4 percent this year as traders have lost faith in the prospect that U.S. rates will diverge from Europe and Japan, where central banks have pursued unprecedented monetary stimulus. While policy makers last week projected one rate increase is ahead in 2016, they also reduced forecasts for tightening in coming years.
“It’s hard for the Fed to be anywhere near hawkish when they just delivered a very dovish message last week,” said Win Thin, global head of emerging markets at Brown Brothers Harriman & Co. in New York. “The market is waiting for the next driver,” especially labor data next week.
The pound headed for its fifth quarterly decline versus the dollar, the longest run since 1984, as the currency bears the brunt of the U.K.’s decision to leave the European Union. the currency dropped 0.2 percent against the dollar on Wednesday.
Benchmark 10-year yields were little changed at 1.54 percent. U.S. two-year yields were at 0.74 percent.
Treasury yields have fallen across maturities since the central bank left rates unchanged at its Sept. 21 meeting, while signaling that the case to hike had strengthened on brightening U.S. economic data. The bullish comments paired with no policy action left bond traders wondering how good conditions need to be for the Fed to move, particularly as officials pared projections for the future path of tightening.
“They say they’re data-dependent but in September they couldn’t even point to any data that suggest they should stand pat,” Charles Plosser, former president of the Philadelphia Fed, said in an interview on Bloomberg Television Wednesday. “That does damage, I think, to their credibility about them being data-dependent.”
Merrill Lynch’s Option Volatility Estimate -ndex, a measure of expected price swings in Treasuries known by the acronym MOVE, rose to 59.23 Tuesday after falling to the lowest closing level in 21 months a day earlier.
With assistance from Netty Idayu Ismail, Emma O’Brien, Ben Sharples, Neil Denslow, David Goodman, Stephen Kirkland, Alan Soughley, James Regan, Paul Burkhardt, Anchalee Worrachate, Wes Goodman, Eddie van der Walt, Rita Nazareth, Roxana Zega, Yun Li, Rebecca Spalding, Mark Shenk and Joseph Ciolli