European markets closed higher and Wall Street bounced as oil spiked almost 5% on hopes for a deal to conquer the global crude glut. The FTSE 100 in London finished 0.6% above 5,911 points while Frankfurt and Paris both added about 1%. Europe had followed Asia lower earlier after Shanghai dropped 6.4% to its lowest close in December 2014.
Brent crude increased almost 6% to $32.30 a barrel, reversing earlier falls while US oil was up 5.4% at $31.98. The Dow Jones industrial average surged 1.8% while the S&P 500 closed 1.4% higher.
Oil made gains in hopes that both Opec and non-Opec producers would take action to tackle oversupply after Opec on Monday called for co-operation from oil producing nations outside the cartel.
Share markets have had a bumpy start to the year as concerns over slowing economic growth in China have gotten more severe while commodity prices have also been buffeted. However China’s economy is still growing, the pace of expansion is slowing, reducing demand for products such as coal and iron ore and thus their prices.
‘No improvement’ Oil prices were hit again earlier on Tuesday by figures from China displaying yearly rail freight volume – a key economic indicator – dropped 11.9% this past year, in contrast with a decline of 3.9% in 2014.
Daniel Ang, an analyst with Phillip Futures in Singapore, stated demand remained weak: “It is going to be very difficult to maintain higher prices.” “Wherever you look – China, oil and the US, there is no clear evidence of improvement in economic fundamentals,” stated Tatsushi Maeno, managing director at PineBridge Investments.
Commenting on the Shanghai slide, Kaiyuan Securities analyst Yang Hai said: “We’ve seen another stampede driven by panic.” Rabobank’s Michael Every said: “It’s just another in a long series of slumps that we have seen in this market, and it’s not the last we will see either because the market is still overpriced. And too many people want to get their money out – it’s been a bubble since it began last summer.” He expected Shanghai, China’s top mainland stock market, to fall a further 10% before stabilizing. Gold bounced to its highest level since November, up 1% at $1,114.
The safe-haven commodity has increased almost 5% this year, after sliding more than 10% in 2015. Chinese state media have warned billionaire investor George Soros against betting on falls in the yuan or the Hong Kong dollar.
China’s central bank has been making plenty of liquidity available to the banking structure to avoid any cash squeeze ahead of the long Lunar New Year holiday early in the upcoming month. Traders stated that the bank would add 440bn yuan into the money markets, the biggest daily injection in three years.