Traders work on the floor of the New York Stock Exchange (NYSE) on Sept. 27.Brendan McDermid/Reuters
A sleepy December Friday turned lively in financial markets as reports China seized an unmanned U.S. vessel sent oil higher, bonds yields and the dollar lower, and rattled equities.
The yield on 10-year Treasuries fell as much as five basis points and gold futures spiked as investors sought safety assets. Crude jumped more than 1 per cent, briefly topping $52 a barrel in New York, as a rise in maritime tensions could crimp deliveries. U.S. equities erased 0.4 per cent from session highs, and the dollar retreated versus its major peers. Soybean futures erased losses on the news.
On a day when the only semblance of drama was whether the Dow Jones Industrial Average would get to 20,000, traders were jarred from their seats as geopolitical tensions surfaced anew. The headlines spurred a rare bout of volatility in markets that have gone close to straight up since Donald Trump's election, complicating the S&P 500 Index's quest for its ninth gain 11 days.
"The market has been in its own little world and I think we're going to hear more about this, the market's been overlooking it a little bit," Michael Block, chief strategist at Rhino Trading Partners LLC in New York, said. "We're assuming trade and all that is going to go in our favor but feathers are going to be ruffled and it's not a linear process. It should be good but there are a lot of geopolitical risks."
Tensions between the U.S. and China have risen in recent weeks after President-elect Donald Trump broke a decades-old policy of not formally recognizing Taiwan's government and suggested the long-standing OneChina policy can be used a bargaining chip in trade talks. China views Taiwan as a renegade province and further recognition by the U.S. would likely elicit an immediate and forceful response and endanger a two-way trade relationship that reached $627-billion in 2015.
"There's been some discontent between China-U.S. relations ever since Trump was elected -- things have soured quite significantly," said Tom di Galoma, managing director of government trading and strategy at Seaport Global Holdings in New York. "I don't necessarily think Obama will do much about it, but maybe we get some kind of tweet out of president-elect Trump."
Canadian stocks rose for a second day as natural-resource producers advanced, with crude prices trimming a weekly loss and gold pushing back after taking a beating during a quarter dominated by the Federal Reserve's decision to raise interest rates.
The S&P/TSX Composite Index added 0.12 per cent to 15,236.32 at 1:50 p.m. in Toronto, for a second day of gains. The gauge has risen almost 18 per cent in 2016, the top performer among developed markets tracked by Bloomberg, ahead of No. 2 market Norway's 14-per-cent advance.
Oil rose for the first time in three days after the dollar's advance stalled and attention shifted back to projected production cuts.
The Euro Stoxx 50 advanced as much as 0.8 per cent to the highest level since December 2015 and erasing its decline in 2016.
The Stoxx Europe 600 Index added 0.3 per cent, led by Actelion Ltd.'s jump of 8.4 per cent after people with knowledge of the matter said Sanofi is in talks to acquire the Swiss drugmaker
Futures rose as much as 2.2 per cent in New York. Prices dropped the past two days as the dollar climbed against major peers after the Federal Reserve raised interest rates, which curbed the appeal of commodities to investors. Goldman Sachs Group Inc. increased its second-quarter oil price forecasts and predicted inventories would return to normal levels by the middle of 2017 as OPEC production cuts ripple through the market.
Oil has traded near $50 a barrel since the Organization of Petroleum Exporting Countries agreed Nov. 30 to trim output for the first time in eight years. A broader deal reached last weekend in Vienna with 11 non-members including Russia encompasses countries that pump about 60 percent of the world's crude.
"The main reason we're moving higher today is that the dollar is mostly flat," said Bill O'Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $6.1 billion. "OPEC is getting the benefit of the doubt and there's hope that the economy will grow strongly next year, which will be good for demand."
West Texas Intermediate for January delivery rose $1, or 2 per cent, to $51.90 a barrel at 12:11 p.m. on the New York Mercantile Exchange. Total volume traded was about 19 per cent below the 100-day average. Prices closed at the highest since July 2015 on Tuesday.
Brent for February settlement increased $1.14, or 2.1 per cent, to $55.16 a barrel on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a $2.23 premium to February WTI.
The Bloomberg Dollar Spot Index, a gauge of the greenback against 10 major peers, slipped 0.2 per cent. The greenback surged Thursday, which makes commodities priced in the currency less attractive to investors.
"This is a range bound market," Thomas Finlon, director of Energy Analytics Group in Wellington, Florida, said by telephone. "We went down to test $50 yesterday and it held. The market is being moved by two major forces, the OPEC and non-OPEC agreements to cut supply are supportive while the strength of the dollar will limit how high prices can go."
Goldman raised its second-quarter WTI price forecast to $57.50 a barrel from $55, and its Brent forecast for the same period to $59 from $56.50, according to a report Friday. If stockpiles held by countries in the Organisation for Economic Co-operation and Development fall, which the analysts see happening in the second quarter of next year, prices could rise.