BLBG:European Stocks Rise To Four-Month High As Bonds, Grains Rally
European stocks rose to a four-month high and Spanish and Italian bonds extended a rally on speculation that policy makers will take action to ease Europe’s debt crisis. The euro weakened, while corn jumped to a record as a drought persisted in the U.S. Midwest.
The Stoxx Europe 600 Index advanced as much as 1 percent to the highest level since April 4, while futures on the Standard & Poor’s 500 Index fell 0.3 percent. The yield on the Italian 10- year bond fell six basis points before the nation sells debt, with the similar-maturity Spanish yield dropping for the fourth consecutive day. The euro depreciated 0.3 percent to $1.2287, snapping a three-day gain, while the Swedish krona rose against all 16 of its most-traded peers. Corn, wheat and soybean futures rallied more than 2 percent.
European Central Bank President Mario Draghi meets with U.S. Treasury Secretary Timothy Geithner in Frankfurt today after leaders in Berlin, Paris and Rome backed him by saying they will do what’s needed to protect the 17-nation euro. Spain’s economy shrank 0.4 percent in the second quarter, the National Statistics Institute in Madrid said today.
“There is an expectation that European leaders will follow up by buying Spanish bonds or further easing,” said A.S. Thiyaga Rajan, a Singapore-based senior managing director at Aquarius Investment Advisors Pte. Globally, “there are no clear signs of recovery,” he said.
The Stoxx 600 (SXXP) extended a run of eight weekly gains as four shares gained for every one that declined. Air France-KLM Group rallied 7.5 percent as Europe’s biggest airline reported a narrower-than-estimated loss. JCDecaux SA sank 8.7 percent after the French billboard company said so-called organic revenue was lower than forecast in the second quarter.
Rescue Fund
The euro declined 0.5 percent versus the yen, falling for the first time in four days. The krona appreciated 0.8 percent against the euro and 0.5 percent versus the dollar after Statistics Sweden data showed gross domestic product unexpectedly accelerated in the second quarter. GDP grew 1.4 percent, beating a median forecast for a gain of 0.2 percent in a survey of economists by Bloomberg.
Draghi’s proposal involves Europe’s rescue fund buying government bonds on the primary market, buttressed by ECB purchases on the secondary market to ensure transmission of its record-low interest rates, two central bank officials said July 27 on condition of anonymity. Further ECB rate cuts and long- term loans to banks are also up for discussion, one of the officials said.
Sovereign Bonds
The cost of insuring European corporate and sovereign bonds using credit-default swaps declined for a fourth day. The Markit iTraxx Crossover Index of swaps on 50 mostly junk-rated European companies fell 12 basis points to 628, the lowest since April 3. The Markit iTraxx SovX Western Europe Index tied to the debt of 15 governments dropped six basis points to 259, the lowest since March 19.
The MSCI Emerging Markets Index (MXEF) climbed 0.5 percent to a three-week high. The Hang Seng China Enterprise Index (HSCEI) of mainland companies listed in Hong Kong gained 1 percent, while the BSE India Sensitive Index (SENSEX) added 1.4 percent. The Micex Index jumped 1.3 percent in Moscow. The Shanghai Composite Index (SHCOMP) fell 0.9 percent to the lowest level since March 2009.
In the U.S., Federal Reserve policy makers meet this week before a jobs report to decide whether additional stimulus is needed to combat a slowdown in the world’s biggest economy.
“It’s increasingly likely that the Fed and European Central Bank will ease further by September,” said Masamichi Adachi, a senior economist at JPMorgan Securities in Tokyo and a former central bank official. In Japan, the government may implement a supplementary budget by September, with the central bank expanding asset purchases, Adachi said.
Industrial Output
Japan’s industrial output fell 0.1 percent in June from May, when it declined 3.4 percent, the Trade Ministry said. The median estimate of 29 economists surveyed by Bloomberg News was for a 1.5 percent increase. The Bank of Korea said an index measuring manufacturers’ expectations for August was at 70, the lowest level since May 2009.
Draghi must now deliver or face a renewed selloff on bond markets, where soaring Spanish and Italian yields have fueled speculation that the monetary union could fall apart. The ECB chief is also attempting to win over Bundesbank President Jens Weidmann, a critic of ECB bond purchases.
Figures tomorrow may show euro-area unemployment climbed to a record 11.2 percent last month, a Bloomberg poll showed. A U.S. report due on Aug. 3 may show the pace of hiring in July probably failed to reduce the nation’s jobless rate, which has been stuck above 8 percent for more than three years, economists said. Other U.S. data may show manufacturing stagnated in July and consumer confidence fell for a fifth month.
Italy Yields
The yield on the Italian two-year note slid 23 basis points as the nation prepared to auction as much as 5.5 billion euros of 2015, 2017 and 2022 securities. Belgium’s 10-year bond yield declined eight basis points as the nation sells as much as 3.5 billion of 2017, 2022 and 2026 debt. France will auction bills due in 84, 175 and 357 days.
The yield on the 10-year U.S. Treasury note rose one basis point to 1.56 percent, climbing for the fourth straight day.
December-delivery corn climbed as much as 3 percent to $8.1725 a bushel on the Chicago Board of Trade and traded recently at $8.15 a bushel. Soybeans for November delivery jumped as much as 2.8 percent to $16.4675 a bushel and wheat for September delivery gained as much as 2.4 percent to $9.195 a bushel.
The drought in the Midwest is unlikely to be broken in the six to 10 days from July 27, as rains that fell in many parts of the region were not enough to improve conditions, Telvent DTN Inc. said.
Crop conditions are the poorest since 1988 and parts of the U.S. are suffering from the worst drought since 1956. Corn has soared 61 percent since June 15, signaling higher food prices and boosting costs for producers of meat and ethanol.
To contact the reporters on this story: Rachel Graham in London at rgraham13@bloomberg. net: Richard Frost in Hong Kong at rfrost4@bloomberg.net;
To contact the editor responsible for this story: Justin Carrigan at jcarrigan@bloomberg.net
