A trader works on the floor of the New York Stock Exchange in the US.  Picture: REUTERS/LUCAS JACKSON
A trader works on the floor of the New York Stock Exchange. Picture: REUTERS/LUCAS JACKSON

LONDON — World stocks extended their best run of the year on Thursday, as a rise in oil prices and confident talk that EU leaders will reach a deal that will help keep Britain in the bloc outweighed concerns about the state of the global economy.

It had been a choppy start for Europe as EU leaders prepared for a two-day summit in Brussels. But the mood improved after European Commission President Jean-Claude Juncker said he was "quite confident" a deal would be reached.

Germany’s Dax and France’s CAC 40 rallied along with much of southern Europe to leave London’s FTSE the only major market in negative territory even as sterling kicked higher.

Oil was also on the front foot having surged on Wednesday following a deal between major producers to cap output.

Wall Street was set for its fourth straight rise with upbeat jobs market data expected to offset disappointing Wal Mart earning.

The S&P 500 is currently on course for its best week in over a year.

"We have had a positive move across markets which has been aided by the Juncker statement on the Brexit (Britain exiting EU) talks that removed some of the dark clouds," said Saxo Bank’s head of FX strategy, John Hardy.

"We’ve now ticked a lot of the boxes this week that have been dogging markets. China has set its currency higher, oil is moving up and now we have the Brexit worries easing."

There were still some jitters. The OECD slashed its economic forecasts for the United States, Europe and Brazil, while big oil producers including Saudi Arabia, Brazil and Bahrain were still shaken by ratings downgrades by S&P.

But it couldn’t dampen risk appetite with emerging market stocks at their highest in over a month and lower-rated southern euro zone debt rallying as bets the European Central Bank is readying to cut its rates boosted them again.

The big force for markets appeared to still be oil, however.

Wednesday had seen a more than 7% jump in Brent on hopes that big producers will cap output and though the rally had lost a bit of momentum, prices inched higher again.

Brent futures topped $35 a barrel, while US crude hit its highest in almost two weeks as it touched $31.60.

"The correlation between oil and equities is still pretty high," said Societe Generale strategist Alvin Tan.

Bullard less bullish

Despite the gains elsewhere, London’s FTSE was refusing to shake off its losses as a number of its big pharmaceutical firms traded ex-dividend and the start of talks neared in Brussels about the UK’s future in the EU.

In the latest draft agreement sent to the bloc’s leaders overnight and seen by Reuters, officials tried to overcome differences over the most contentious areas of David Cameron’s renegotiation — migration curbs and financial safeguards — but much was still open for debate in talks that could stretch into Thursday night.

European Council President Donald Tusk who is chairing the summit wrote "There will not be a better time for a compromise. It is our unity that gives us strength and we must not lose this. It would be a defeat both for the UK and the European Union, but a geopolitical victory for those who seek to divide us."

In the currency markets, the mood remained a little subdued as the safe-have yen kicked higher against the dollar again, while the Australian dollar was the biggest loser following a larger-than-expected rise in unemployment.

Sweden’s crown got a boost from stronger-than-expected inflation. It was particularly strong against the euro as minutes from the last European Central Bank meeting underscored its willingness to cut its already deeply negative rates again.

Safe-haven gold was pushed back to $1,206 an ounce by the revival in risk appetite as industrial metals like copper climbed.

The dollar, meanwhile, was a touch stronger though it remained lethargic following comments on Wednesday from one of the Federal Reserve’s traditional ‘hawks’, James Bullard, that it would be "unwise" now for the central bank to keep hiking rates given low inflation expectations and market volatility.

Overnight, MSCI’s broadest index of Asia-Pacific shares outside Japan jumped 1.9%. Tokyo’s Nikkei gained 2.8%, shrugging off the biggest drop in domestic exports since 2009.

Australian shares climbed 2.2% and South Korea’s KOSPI added 1.1%, though Shanghai stocks dipped in a muted reaction to a rise in inflation.

"Recovering oil prices have set the stage for an accelerated rebound in global stocks, while minutes from the FOMC supported the mood," said Rhoo Yong-seok, a stock analyst at Hyundai Securities.

Late on Wednesday, S&P delivered the latest blow to oil producers as it downgraded Saudi Arabia, Brazil, Kazakhstan, Bahrain and Oman’s credit ratings.

The impact was felt almost immediately in Oman as borrowing costs jumped at an auction of government bonds.