Asian markets should be well underpinned on Tuesday after Wall Street closed at historic highs while oil prices suffered a vicious setback after Saudi Arabia quashed all thought of cutting supply.
The revival in risk appetites undermined the safe haven yen and kept the U.S. dollar elevated across the board, while sovereign bonds were content to consolidate recent gains.
Equity investors chose to focus on the benefits that falling fuel prices would have for consumer spending power.
“Overall, we see this as a shot in the arm for the global economy,” Olivier Blanchard, chief economist at the IMF, and Rabah Arezki, head of the commodities research team, wrote in their blog on Monday.
They estimated the boost to world growth would be between 0.3 and 0.7 percentage points above the Fund’s baseline forecast of 3.8 percent, with the gain to China ranging from 0.4 to 0.7 percentage points.
Trading was thin in Asia with Japanese markets closed for a holiday. Australian stocks ran into profit-taking after three sessions of sharp gains and dipped 0.2 percent .AXJO.
MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS was likewise off 0.1 percent.
On Wall Street, the S&P 500 .SPX put on 0.38 percent to an all-time closing high, while the Dow .DJI added 0.87 percent and the Nasdaq .IXIC 0.34 percent.
Europe’s broad FTSEurofirst 300 index .FTEU3 had added 0.44 percent encouraged in part by further evidence the European Central Bank was set to buy euro government bonds. [TOP/CEN]
Expectations the ECB will act as soon as January saw the euro touch a 2-1/2 year trough at $1.2215 on Monday and it was last trading at $1.2225 EUR=.
In contrast, the Federal Reserve remains on track to hike rates at some point in 2015 which has widened the premium offered by two-year U.S. debt to 75 basis points over German bunds, the fattest margin since early 2007. US2YT=RR
The attraction of U.S. yields lifted the dollar to 120.11 yen JPY=, leaving last week’s 115.56 low as a distant memory. The dollar index .DXY reached its highest since April 2006.
The steady climb in the dollar made life miserable for gold buffs as the precious metal slipped almost $20 to $1,176.41 XAU=.
Oil bulls also suffered a cruel blow when Saudi Arabia’s powerful oil minister said OPEC would not cut production at any price. Ali al-Naimi said the Saudis might instead boost output to grow market share and that oil “may not” trade at $100 again.
U.S. crude CLc1 was pinned at $55.49 after losing $1.75 on Monday, while Brent LCOc1 fell $1.25 to $60.13.
There is little in the way of Asian data due on Tuesday but a full U.S. calendar includes November durable goods orders, final third-quarter GDP, home prices and inflation.