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While you were sleeping: Oil report lifts mood

Wednesday 13th April 2016

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Wall Street took its cue from rising oil prices, which overshadowed a downgraded outlook for Alcoa.

Crude rose more than 4 percent after the Interfax news agency reported Saudi Arabia and Russia reached a consensus on an output freeze, citing an unidentified “informed diplomatic source” in Doha, and that Saudi Arabia will make a final decision regardless of Iran’s position.

Shares of Alcoa fell, 2.7 percent lower in afternoon trading in New York, amid concern about the metals company's outlook for its largest manufacturing unit. Alcoa is set to split in two  in the second half of this year, with its traditional smelting and refining unit maintaining the Alcoa name, while its manufacturing business will trade under the name Arconic.

“There will be some disappointment” on the outlook for engineered products, Anthony Young, an analyst at Macquarie Group, told Bloomberg. “This is the cornerstone of Arconic and if that business isn’t as good as they previously thought, it may negatively impact the longer-term valuation.”

Wall Street advanced. In 2.34pm New York trading, the Dow Jones Industrial Average climbed 0.9 percent, while the Nasdaq Composite Index advanced 0.7 percent. In 2.20pm trading, the Standard & Poor’s 500 Index rose 0.9 percent.

The Dow rose, led by gains in shares of Chevron and those of Caterpillar, up 2.4 percent and 2.1 percent respectively.

The start of a US earnings season that’s expected to be dismal is helping equities.

“The market has been expecting earnings to be absolutely terrible and they are, but they’re not quite as terrible as everyone thought and things are looking better ahead," Brad McMillan, chief investment officer for Commonwealth Financial in Waltham, Massachusetts, told Reuters.

“When you combine not-as-bad today with the promise of a better tomorrow, that says that perhaps there’s more upside and the market is starting to react to that,” McMillan noted.

Even so, shares of Juniper Networks dropped, last 7.3 percent lower, after the company forecast lower-than-expected quarterly profit and revenue.

In Europe, the Stoxx 600 Index ended the day with a 0.5 percent increase from the previous close. Mining stocks rose, with shares of Anglo American soaring 9.2 percent.

The UK’s FTSE 100 Index rose 0.7 percent, while France’s CAC 40 Index rose 0.8 percent, as did Germany’s DAX Index.

Meanwhile, the International Monetary Fund downgraded its outlook for global growth this year. 

In its latest World Economic Outlook, the IMF predicted the global economy will expand 3.2 percent this year, down from a January forecast for 3.4 percent. It downgraded its estimate in January this year, as well as in July and October last year. It expects growth of 3.5 percent for 2017, also revised lower from January’s 3.6 percent estimate.

“The global recovery has weakened further amid increasing financial turbulence,” the IMF said in the report. “The recovery is projected to strengthen in 2017 and beyond, driven primarily by emerging market and developing economies, as conditions in stressed economies start gradually to normalise.”

“But uncertainty has increased, and risks of weaker growth scenarios are becoming more tangible,” the IMF noted.

Kevin Dutta-Gupta, GM Research at Investment Research Group said "Equity markets have been tracking oil price movement for a while now and it is no surprise that Global equities have gone up with higher oil price." He also added " There will be volatility in the coming few weeks as earnings season unfolds and investors should also keep themselves updated with Iran's stand on the oil production freeze." 



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