×

Stocks Set for Best December Performance in a Decade

World stocks clung near two-year peaks while oil rose towards the $92 per barrel mark on Friday after yet another burst of strong economic figures from the United States encouraged some year-end buying.

Close-up of a pen on stock price chart
Close-up of a pen on stock price chart

The latest rally in major European and U.S. stock indices has given investors the biggest December gains in more than a decade.

Expectations of strong U.S. fourth quarter performance was further cemented by latest data which showed demand for durable goods rising and consumer spending picking up.

A slew of strong numbers coming out of the world's biggest economy in recent weeks has given global growth bulls another reason to cheer and boosted commodities and stocks.

Reflecting that growing optimism, the Asia Pacific-ex Japan shares for energy shares advanced slightly while other indexes were broadly flat to slightly lower.

Trading was thin and prices confined in narrow ranges in Asia, with many centers on holiday in thin year-end markets. U.S markets are also shut along with many European centers.

World stocks as measured by the MSCI extended gains by nearly 6.5 percent so far this month while the Asia-Pacific version was largely unchanged.

"In the U.S., fears of a double dip recession have receded considerably with the extension of tax relief agreed in December and a second round of quantitative easing in November," Fitch Ratings said.

"High frequency activity has also turned more positive, reflecting strength in private consumption and corporate profitability."

That has made investors more sanguine towards developed markets.

Latest EPFR data showed developed markets equity funds posted their longest fund inflow streak since the fourth quarter of 2009 at the expense of emerging markets equity funds.

Heady Brew

Copper prices too stuck near record peaks while the S&P/Goldman commodities index was set for its best monthly performance since May 2009.

Oil maintained its upward trajectory, having gained nearly 9 percent so far this month raising concerns that more sharp gains could be negative for Asian economies as it would feed into inflationary expectations. The region is a net importer of oil.

Easy money from the Federal Reserve, a strong global economic recovery, and Chinese policymakers that still seem a little too reluctant to sacrifice growth for necessary reforms has proved to be a heady brew for raw materials with major commodity indices up by 10 percent since mid-November, Gavekal strategists said.

The euro held its ground versus majors with the prospect of a significant short squeeze rising as the downside momentum was fading. A breach of $1.32 could trigger a move back towards the Dec. 17 high around $1.3360.

"The euro is still a sell-on-rally trade. Anything above $1.32 is worthwhile selling in my view and probably there won't be any buyers until the low $1.30s, where we could see some Asian central bank interest," a trader at a U.S. investment bank said.

Concerns on the eurozone's debt crisis kept simmering after Fitch cut Portugal's ratings by a notch to A-minus, pressuring peripheral European countries CDS higher.

Benchmark 10-year U.S. Treasury yields were steady after rising slightly overnight to 3.40 percent. They are up by nearly 100 bps since the Fed's announcement of its much awaited second round of quantitative easing last month.