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Oil prices surge, hitting highest point since June

A pump jack dwarfs a house northwest of Calgary, in this Sept. 28, 2004 photo.
A pump jack dwarfs a house northwest of Calgary, in this Sept. 28, 2004 photo. THE CANADIAN PRESS/Jeff McIntosh

Oil prices surged on Wednesday after a report showed a drop in U.S. crude stockpiles, fuelling energy shares and helping lift Wall Street along with encouraging economic data.

In Europe, bond yields jumped while the pan-European STOXX index fell 0.6 percent, with markets rattled by the prospect of the region’s central bank eventually winding down its bond-buying stimulus.

The Toronto Stock Exchange surged 86.70 points after two hours of trading Wednesday morning.

And the Canadian dollar was up 0.05 of a cent from Tuesday’s close to 75.84 cents on Wednesday morning.

MSCI’s gauge of stocks across the globe climbed 0.3 percent after two sessions of declines.

READ MORE: Oil industry headed for $10B loss this year

U.S. services sector activity rebounded to an 11-month high in September, an encouraging sign for economic growth.

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“If there had been any concern about some sort of imminent recession anytime soon a lot of this data seems to debunk that thesis,” said Jeff Weniger, senior strategist at BMO Wealth Management in Chicago.

The Dow Jones industrial average rose 126.55 points, or 0.7 percent, to 18,295, the S&P 500 gained 11.89 points, or 0.55 percent, to 2,162.38 and the Nasdaq Composite added 37.40 points, or 0.71 percent, to 5,327.06.

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The energy sector gained 1.7 percent.

READ MORE: Canada’s oil industry not likely to rebound by end of decade

U.S. stocks have been pressured this week by concerns over Britain’s exit from the European Union and expectations of a Federal Reserve interest rate increase in the coming months.

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Chicago Fed President Charles Evans said he would be “fine” with raising U.S. interest rates by year-end if U.S. economic data continued to come in firm.

Traders see a 64-percent chance the Fed will hike at its December meeting, according to the CME FedWatch website. Financial shares, which tend to benefit in a rising rate environment, climbed 1.6 percent.

“People are certainly waiting for that inevitable interest rate rise by the Fed, but I think they’re just not sure if that’s a sign that things are better and earnings are likely to improve, or a reason for people to sell stocks because rates are rising,” said Rick Meckler, president of LibertyView Capital Management in Jersey City, New Jersey.

Oil prices rose to their highest since June after the fifth unexpected weekly drawdown in U.S. crude inventories.

READ MORE: Canada’s oilpatch predicted to see another year of losses 

Speculation about the Organization of the Petroleum Exporting Countries’ plan to cut production at its meeting next month also supported the market.

Benchmark Brent crude was up 2 percent, at $51.90 a barrel, while U.S. West Texas Intermediate crude rose 2.3 percent at $49.82 a barrel.

Euro zone bond yields soared amid concerns the European Central Bank might reduce its asset purchases before the program finally ends. A Bloomberg article on Tuesday cited sources as saying the ECB would probably wind down the monthly 80-billion euro ($90 billion) scheme gradually.

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READ MORE: Global economy is tanking, says watchdog, but Canada can weather the storm

Italy’s 10-year bond yield rose to 1.38 percent, its highest level since late June, according to Reuters data. Germany’s 10-year Bund yield – the euro zone benchmark – rose more than 8 bps to hit zero for the first time in a fortnight. “I am surprised at the reaction, but it’s just this notion that the ECB may be discussing tapering one day that has upset the market,” said ING rates strategist Benjamin Schroeder.

Benchmark U.S. 10-year notes were last down 11/32 in price to yield nearly 1.72 percent, up from 1.68 percent late Tuesday.

 

(Additional reporting by Barani Krishnan in New York and Nigel Stephenson and Dhara Ranasinghe in London; Editing by Susan Thomas and Nick Zieminski)

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