US open: Dow jumps over 120 points as oil prices provide boost to equities

US stocks rallied early on Wednesday, taking the lead from worldwide equity markets and as oil prices extended gains.

Shortly before 1500 BST, the Dow Jones Industrial Average was up 125 points to 16,915.66, while the S&P 500 and the Nasdaq were five and 27 points higher respectively.

Oil extends gains

Oil prices extended Tuesday’s rally, with West Texas Intermediate gaining 1.58% to $49.31 a barrel, while Brent rose 1.72% to $52.83 a barrel.

“This stronger oil price should provide strength to currencies with export linked commodity exports,” said FXTM research analyst Lukman Otunuga.

“Despite the inspiration gained by WTI bulls, the global themes concerning the decline in commodity prices, the slowdown in Asia and continual concerns over the pace of growth in Europe and Japan have not changed.”

Elsewhere, European stocks gained, while Asian equity markets edged higher on Wednesday after the Bank of Japan opted against extending its stimulus measures.

Japan’s central bank decided by an 8 to 1 vote to leave the bank's policy target unchanged and reiterated its pledge to increase base money at an annual pace of 80trn yen (£436bn) via asset purchases.

The dollar declined 0.26% and 0.48% against the yen and the pound respectively but rose 0.28% against the euro, while gold futures climbed 0.04% to $1,147.71.

In company news, Yum Brands plunged 18.7%, after the owner of KFC and Pizza Hut cut its earnings outlook for the year late on Tuesday, citing a slower-than-expected recovery in China.

Mining group Freeport-McMoRan jumped 7.78%, while Constellation Brands rose 1.84% after its quarterly results topped expectations.

“The food quality scandal in China continues to dent demand in the country that has been contributing the most to the restaurant chain’s growth,” said CMC Markets’ analyst Jasper Lawler.

On the economic data front, the Mortgage Bankers Association said its seasonally adjusted index of application activity, which covers home purchase demand and refinancing demand, soared 25.5% in the week ended 2 October.

The seasonally adjusted sub-index of refinancing applications jumped 24%, while the index of loan requests for home purchases, a key indicator of home sales, rose 27% and is now 49% higher year-on-year.