BLBG: European Stocks, Oil Climb; Spanish Bonds Drop After Downgrade
May 31 (Bloomberg) -- European stocks and oil advanced as investors speculated the economy is strong enough to withstand the region’s debt crisis. Spanish government bonds fell after Fitch Ratings stripped the nation of its AAA rating.
The Stoxx Europe 600 Index gained 0.4 percent at 1:21 p.m. in London, trimming this month’s slide to 5.7 percent. Futures on the Standard & Poor’s 500 Index rose 0.5 percent. Oil climbed above $74 a barrel in New York. The yield premium investors demand to hold Spain’s 10-year bonds rather than German bunds widened to the most in more than three weeks.
The MSCI World Index of stocks in 24 developed markets has rallied 57 percent from its low in March 2009 as the economy recovers from the worst recession since World War II and central banks have committed to keeping interest rates low. Federal Reserve Bank of Chicago President Charles Evans told reporters in Seoul today that he “wouldn’t be surprised” if the Fed’s policy of low rates “gets extended just a little bit.”
“Over the next one-two months a relatively resilient economic and profit outlook should push riskier assets up on average, and government bonds down,” Jan Loeys, JPMorgan Chase & Co.’s London-based strategist, wrote in a report e-mailed today. “Confidence surveys remain strong and lower interest rates, oil prices and a cheaper euro are providing positive feedback from the market correction.”
Europe’s Stoxx 600 climbed to 245.07 as the benchmark gauge for European equities pared its biggest monthly decline since February 2009. Sanoma Oyj jumped 4.8 percent in Helsinki trading after the biggest Nordic media company agreed to sell its Welho unit. Spain’s IBEX 35 sank 0.7 percent, extending this month’s retreat to 11 percent. U.S. and U.K. markets are closed today for holidays.
$4 Trillion
Concern the European debt crisis may worsen has wiped more than $4 trillion from the value of global equities this month. The selloff has left the Stoxx 600 trading at less than 15 times the reported earnings of its companies, the cheapest valuation since 2008, according to data compiled by Bloomberg.
The MSCI Asia Pacific Index slipped 0.1 percent even as two stocks advanced for every one that declined. Asian stocks pared earlier losses as Japanese factory output rose 1.3 percent in April from March and India’s economy grew 8.6 percent in the three months ended March 31.
The MSCI Emerging Markets Index gained for a fourth day, rising 0.4 percent. The advance trimmed its slump in May to 9.8 percent, its worst month since October 2008. Benchmark indexes in South Korea, Thailand and Indonesia rose more than 1 percent today.
Gaza Flotilla Raid
Turkey’s ISE National 100 Index retreated 1.9 percent, snapping a three-day rally, after Israel raided an international flotilla carrying aid to Gaza that included Turkish-registered vessels. The lira dropped 0.4 percent. Israel’s benchmark equity gauge lost 1.9 percent, the most in a week, and the shekel depreciated as much as 1.3 percent.
The Czech koruna strengthened 1.4 percent against the euro, heading for the biggest advance in three weeks, after parties that pledged to rein in spending won the most votes in parliamentary elections.
The yield on Spanish 10-year bonds rose three basis points to 4.27 percent after Fitch downgraded the country’s credit rating one step to AA+ from AAA, following the close of European markets on May 28. Spanish two-year yields climbed 13 basis points to 2.55 percent.
German government bonds rose, with the yield on the 10-year bund two basis points lower at 2.66 percent. The difference in yield between Spanish and German 10-year securities widened five basis points to 158 basis points, according to generic data compiled by Bloomberg.
Southern Europe
“Spanish bonds are already trading as if they were BB- so a downgrade to AA+ won’t shake markets but it still reminds us of the problems in southern Europe,” said Arne Lohmann Rasmussen, chief currency analyst with Danske Bank A/S in Copenhagen.
The yen weakened against 15 of 16 major counterparts as Japan’s Social Democratic Party left the government, weakening the coalition less than two months before parliamentary elections.
The Japanese currency declined 0.5 percent to 91.49 per dollar from 91.06 in New York on May 28. The yen has jumped 9.6 percent in May, according to Bloomberg Correlation-Weighted Currency Indexes.
Oil rose 0.6 percent to $74.39 a barrel in electronic trading in New York on speculation that economic growth in the U.S., the world’s biggest energy consumer, will sustain a global recovery in fuel demand. Crude was still poised for its biggest monthly fall since December 2008, having declined 14 percent in May.
Copper for July delivery gained 0.3 percent in New York to $3.1145 a pound. The most active contract tumbled 7 percent in May, the most since January. Gold for immediate delivery was little changed at $1,215.03 an ounce.
To contact the reporter on this story: Andrew Rummer at arummer@bloomberg.net
