NEW YORK: The dollar raced to five-month highs against a broad range of currencies yesterday as new data showed economic weakness was spreading to the euro zone while oil prices slid below $117 a barrel as supply concerns waned.
Escalating violence in Georgia helped send emerging economy stock markets to their lowest in almost a year. Russia was the hardest hit as investors suddenly viewed all emerging markets as riskier.
Markets were transfixed by falling oil, though, which inspired Wall Street to shake off a weak start and pushed major stock indexes up well over 1 percent. European stocks also benefited from the improved sentiment.
The rebound in risk appetite hurt safe-haven assets such as government bonds, as is normally the case. This sent prices lower on US Treasuries and euro zone government paper, making their yields, which move in the opposite direction, rise.
“What we are seeing now is oil off, equities are up and that’s dragging Treasury yields up,” said T.J. Marta, fixed income strategist with RBC Capital in New York. The Dow Jones industrial average was up 189.79 points, or 1.66 percent, at 11,621.22. The Standard & Poor’s 500 Index was up 17.43 points, or 1.38 percent, at 1,283.50. The Nasdaq Composite Index was up 35.40 points, or 1.50 percent, at 2,391.13.
Traders were betting the further drop in oil would help inflation to ease, so stimulating spending by businesses and consumers and thus restoring corporate profit growth.
US oil prices fell $3.37, or 2.81 percent, to $116.65 per barrel. Ironically, the market for crude was responding to worries about weaker demand. The stronger US dollar also helped, however, outweighing concerns that an intensifying conflict between Russia and Georgia could disrupt Caspian energy supplies.
“It seems that we’ve got a lot of selling based on the stronger dollar,” said Peter Beutel, president of trading consultants Cameron Hanover in New Canaan, Connecticut.
