Stocks and oil, at the forefront of a global market rout since the turn of the year, rebounded strongly on Friday thanks to hints of more monetary policy support by the European Central Bank and some encouraging words from a top Saudi Arabian official.
Khalid al-Falih, chairman of the world’s largest oil producer, Saudi Aramco, told the World Economic Forum in Davos that “the market has overshot on the low side and it is inevitable that it will start turning up,” according to The Financial Times. However, he repeated Saudi Arabia won’t take any unilateral action to support prices, suggesting that the root cause of this month’s rout–the chronic imbalance between supply and demand, isn’t going away any time soon.
By 0700 ET, U.S. crude oil future were at $30.94 a barrel, up more than $2/bbl from their lows earlier this week and set to end up for the week for the first time since early December, but still failing to hold an initial push above the $31 level.
Stocks were also bouncing back from oversold levels, led by the Japanese Nikkei index, which rose 5.9%, and Russia’s (oil-sensitive) RTS, which was up 7.8% as the ruble strengthened below 80 to the dollar. By 0700 ET The S&P 500 futures contract was up 1.4% from Thurday’s close, while the Nasdaq future was up 1.8%.
The surge comes a day after ECB President Mario Draghi signalled the central bank would ease policy further at its next meeting, in March to combat fading growth and disinflation, a message he reiterated at the World Economic Forum in Davos on Friday.
European stocks followed Asia’s lead. The region’s main indices rose around 2 percent for the second consecutive day. Remarkably, given the recent steep declines, some were on track for their best weekly performance in two months.
Investors seized on Draghi’s comments and bet that the Bank of Japan might also ease policy further next week and that the Federal Reserve will go slow in raising U.S. rates this year.
“With inflation so low, it would be strange if central banks didn’t do more in the face of such market turmoil and elevated risk factors,” said John Reid, strategist at Deutsche Bank in London.
Currency analysts at Goldman Sachs lowered their euro forecasts late on Thursday, in a note that predicted the currency would fall below parity with the dollar and end the year at $0.95.
“In our view there will be more easing for longer than the market expects,” the analysts wrote. “This is the underlying reason why we think the euro’s downtrend will continue and be large.”