The OPEC deal to cut oil production to a ceiling of 32.5mn bpd had a powerful impact on global markets with a surge in oil prices of close to 10% following the deal with WTI breaking above the $50.0 p/b level following the announcement and the highest level for over a month.
The strong gains in oil prices had an important direct beneficial impact on the Nikkei index.
Currency trends were also important as the dollar secured a fresh round of strong gains against the yen with a peak just above 114.80 and the strongest level for over nine months. Dollar strength had an important impact in boosting Japanese stocks during Thursday’s session.
US equities, however, were on the defensive late in the session with significant weakness outside the energy sector as the Nasdaq index declined by over 1.0%.
In this context, bond yields had a mixed impact as higher yields had a significant impact in curbing global equity-market support.
US President-elect Trump nominated Mnuchin to be the Administration’s Treasury Secretary, which was seen as the most mainstream choice. There was reassurance in his initial comments with a pledge to concentrate on tax reform and trade deals with no comments on dollar strength.
The official Chinese PMI manufacturing data was stronger than expected with the highest level for over 2 years at 51.7 from 51.2 previously, which underpinned risk appetite, although there was a decline in the Caixin manufacturing index to 50.9 from 51.2, which created some caution.
The Nikkei index opened with strong gains of over 200 points and extended the gains during the morning session with a peak close to 18,750 just ahead of the session break. The index initially held steady after the break, but there was a significant retreat late in the session as the dollar lost traction and rising bond yields caused wider concerns surrounding equities.
At the close, the Nikkei gained 204.64 points and 1.12% at 18,513.12 and fresh 11-month closing highs.
Trends in the dollar will continue to have an important impact with the US data releases ahead of Friday’s payrolls report also significant with markets looking closely at Wall Street trends during Thursday.