Wall Street rallies as crude oil rebounds

Thursday 21.00 BST. Wall Street overcame an early bout of caution as energy stocks rallied strongly on the back of a rebound in crude prices and participants put aside concerns over corporate earnings, the strength of the dollar, and the outlook for Federal Reserve policy.

European stocks rallied to their highest levels in nearly eight years, while the Hong Kong market attracted attention as the Hang Seng index rose sharply for a second successive session.

In New York, the S&P 500 ended 0.4 per cent higher at 2091, having earlier fallen to 2,074.29. The day's move left the US equity benchmark 1.2 per cent below the record closing high struck early last month.

Brent oil rose 1.8 per cent to settle at $56.57 after sliding 6 per cent on Wednesday following news of a forecast-beating build-up in US crude inventories last week.

But shares in Alcoa fell sharply after the aluminium producer kicked off the first-quarter earnings season late on Wednesday with revenues that fell short of expectations.

Analysts have cut their first-quarter earnings forecasts sharply, given signs of slowing growth in the period and the recent strength of the dollar - although the outlook for later in the year appears somewhat brighter.

"Industry analysts are currently estimating that S&P 500 earnings will fall 4.0 per cent and 2.1 per cent during the first and second quarters, respectively, but then increase 2.7 per cent and 6.2 per cent during the final two quarters of the year," said Ed Yardeni at Yardeni Research.

Meanwhile, the minutes of last month's meeting of the Fed's Open Market Committee, which were published on Wednesday, offered few fresh clues about when US interest rates might rise.

"While the minutes were fairly neutral relative to market expectations, judging by the lack of market reaction, the more market-relevant commentary from the Fed continues to originate from New York Fed president [Bill] Dudley," said Hans Mikkelsen, credit strategist at BofA-Merrill Lynch.

"Instead of focusing on the precise date for [rate] 'lift-off', Mr Dudley continues to address his views on the much more important question of the path for rate hikes after lift-off. And rather than the specific path he emphasises its dependency on financial market conditions."

US weekly jobless data appeared to play to rate hawks. Although initial claims for unemployment benefits bounced after the previous week's sharp fall, the four-week moving average, and continuing claims, fell to post-recession lows, "suggesting that US labour markets remain solid, despite the weaker-than-expected growth in March payrolls reported last Friday", said Jesse Hurwitz, economist at Barclays.

There was an even more bullish tone to European stock markets on Thursday, as recent bid and merger activity and the prospect of continued policy accommodation from the European Central Bank helped drive the FTSE Eurofirst 300 up 1.1 per cent to its highest close since July 2007.

Greek stocks rose 1.1 per cent, and yields on the nation's government bonds fell, after Athens repaid a €450m loan to the International Monetary Fund on time.

But Victoria Clarke, economist at Investec, warned that the direction of Greece's debt discussions remained very uncertain. "Greece still needs to reach an agreement on reforms to unlock aid but progress remains incredibly slow," she said, noting reports that Greece had been given an ultimatum to provide a final list of reforms within six working days.

Reflecting the uncertainty regarding Greece - as well as the ECB's quantitative easing programme - the yield on the 10-year German Bund touched a record low of 0.14 per cent before edging back up to 0.16 per cent, down 1 basis point on the day.

But there were few signs of demand for the perceived safety of US Treasury bonds. The 10-year yield was up 7bp at 1.96 per cent and the two-year was 2bp higher at 0.55 per cent.

The rate differential between the US and most other countries continued to support the dollar, which rose 1.2 per cent against a basket of currencies . The euro was 1.2 per cent lower at $1.0646 while the dollar was up 0.4 per cent versus the yen at Y120.66.

The dollar's strength helped nudge gold down $7 to $1,194 an ounce.

Meanwhile in Hong Kong, the Hang Seng index rose as much as 6.5 per cent, before settling 2.7 per cent higher following Wednesday's 3.8 per cent rise.

Traders pointed to renewed strong Chinese buying of Hong Kong equities through the Shanghai-Hong Kong Stock Connect, reflecting the hefty valuations of some Chinese companies.

Indeed, the Shanghai Composite fell 0.9 per cent, paring its year-to-date gain to 22 per cent.

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