BLBG: Stocks, Australian Dollar, Rand Advance; Yen, Bonds Decline
June 19 (Bloomberg) -- Stocks rose, trimming the first weekly decline in a month, and currencies of commodity producers strengthened against the yen as prospects for an end to the recession stoked demand for higher-yielding assets. Bonds fell.
The Dow Jones Stoxx 600 Index of European shares added 1.5 percent at 10:47 a.m. in London, while futures on the Standard & Poor’s 500 Index gained 0.6 percent. The Australian dollar appreciated 1.5 percent and the South African rand strengthened 1.2 percent against the yen, which weakened 0.7 percent versus the euro and 0.6 percent against the U.S. dollar. The yield on the German 10-year note climbed two basis points to 3.56 percent.
European Union leaders said they see the first signs of a “sustainable economic recovery” and ruled out increased spending to halt the worst slump since World War II. Morgan Stanley predicted a 32 percent rally in stocks of developing nations in the coming year as earnings beat estimates. The MSCI Emerging Markets Index rose for the first time in six days, ending the longest losing streak in five months.
“We’re bouncing back faster than we’d expected,” Paul Mortimer-Lee, head of market economics for BNP Paribas SA in London, said in an interview on Bloomberg Television. “Manufacturing globally is coming back.”
Corporate bond sales showed investors are seeking higher yields nine months after Lehman Brothers Holdings Inc.’s collapse caused global credit markets to freeze. Wind Telecomunicazioni SpA, Italy’s third-largest mobile-phone company, plans to sell as much as 2.7 billion euros ($3.8 billion) of debt in Europe’s biggest junk-bond issue since 2006. Tesco Plc completed the first public sale of commercial mortgage-backed bonds in two years on June 17.
Oil Rises
Crude oil rose 0.8 percent to $71.93 a barrel in New York trading, advancing for a third day. Copper fell 0.1 percent to $4,966 a metric ton in London, heading for its first weekly drop since mid-May.
“Further budgetary stimulus would not be warranted and attention should shift toward consolidation, keeping pace with economic recovery,” EU leaders said today in a draft statement obtained by Bloomberg News at a summit in Brussels. “There is a clear need for a reliable and credible exit strategy.”
The MSCI Emerging Markets Index, which surged more than 30 percent this year, added 0.5 percent to 747.44, the first increase since June 11. The gain trimmed this week’s decline to 5.4 percent, the biggest drop since February.
The MSCI index of 22 developing nations may climb to 985 by June 2010, 21 percent higher than the brokerage’s earlier prediction, Morgan Stanley strategists led by Jonathan Garner in London wrote in a report dated yesterday.
Thailand Shares
Thailand’s SET Index rose for the first time in five days, climbing 2.1 percent. The measure, which moved more than any other index today, has dropped 7.7 percent this week, ending a 14-week rally.
Futures traders are demanding the smallest discounts to speculate on European stocks since June 2007 as equities rally, the latest sign that financial markets have recovered from last year’s credit seizure.
Markdowns that traders require to exchange the current Dow Jones Euro Stoxx 50 Index futures contract, which expires today, for one that matures in three months was 2.63 index points as of June 17, according to estimates by Frankfurt-based Deutsche Bank AG. The discount averaged 8 points in the two weeks leading up to the December expiration, the widest difference since the data began in March 2006.
Today’s advance in European stocks trimmed the Stoxx 600’s slump since June 12 to 2.7 percent.
‘Tug of War’
“It’s a tug of war between the bulls and bears,” said Matt Riordan, who helps manage about $3.2 billion at Paradice Investment Management in Sydney. “There’s the belief that this is the start of the upturn and that things will keep improving, and on the flip side that things have come too far too fast.”
The Stoxx 600 has retreated this week on speculation share prices have outpaced the outlook for economic growth after a three-month, 36 percent rally sent valuations up to 25.4 times earnings, the highest level since 2004, according to weekly data compiled by Bloomberg.
Evidence the world’s biggest economies are rebounding drove U.S. stocks higher for the first time in four days yesterday. Continuing jobless claims had the first drop since January while reports on leading economic indicators and Philadelphia-area manufacturing beat economists’ estimates. The World Bank raised its forecast for Chinese economic growth to 7.2 percent.
Stocks and credit markets have recovered since the Federal Reserve and the government pledged $12.8 trillion to rescue U.S. financial markets.
Evidence “continues to flash a green light suggesting that the current equity market correction is likely to be followed by another impulsive advance,” a team of currency strategists at BNP Paribas SA led by Hans-Guenter Redeker in London wrote in a report today. “Economic data continues to strengthen.”
