BLBG: Stocks Climb With Bonds as Emerging Currencies Advance
Global stocks advanced, with U.S. equities trading near records, and bonds rallied from Australia to Spain after the Federal Reserve said rates will remain low as the economy grows. Emerging-market currencies strengthened and the dollar fell to the lowest in a month.
The Standard & Poor’s 500 Index (SPX) was little changed at 10:08 a.m. in New York after closing yesterday at an all-time high. The Stoxx Europe 600 Index added 0.8 percent. Ten-year Treasury yields slid two basis points to 2.57 percent. A gauge of emerging-market currencies gained for a second day as the Bloomberg Dollar Spot Index dropped to its lowest level since May 21. Gold futures rallied 1.7 percent and Brent crude jumped to a nine-month high.
The Fed said yesterday it expects rates to stay low for a “considerable time” after monthly bond purchases end as the economy recovers. Policy makers reduced long-term estimates for growth and interest rates, while also cutting purchases by $10 billion. U.S. data today showed signs of steady progress in the labor market and improving consumer confidence. Iraqi forces battled insurgents and major oil companies evacuated workers from OPEC’s second-biggest producer.
“Having the Fed say that the long-term rate could be lower, even if long-term growth isn’t, is a bullish gesture for both stocks and bonds,” said Thomas Thygesen, head of cross-asset strategy at Skandinaviska Enskilda Banken AB in Copenhagen. “That’s a big change from March and it means the Fed is willing to try harder to achieve its growth and inflation objectives.”
Global Equities
The MSCI All-Country World Index, one of the broadest measures of global equities, jumped 0.6 percent to an all-time high. All 19 industry groups in the Stoxx 600 rose as the gauge was 0.2 percent short of a six-year high reached June 10. The MSCI AC Asia Pacific Index (MXAP) added 1.2 percent.
Fed Chair Janet Yellen told reporters at the end of a two-day meeting in Washington yesterday that accommodative monetary policy, rising home and equity prices and the improving global economy should help stoke above-trend growth in the U.S. Yellen emphasized the need to put more Americans back to work and downplayed concerns about asset-price bubbles and incipient inflation.
The Conference Board’s U.S. leading economic indicators gauge, a measure of the outlook for the next three to six months, increased 0.5 percent in May after a 0.3 percent gain in April, the New York-based group said today.
Other reports todays showed fewer Americans filed applications for unemployment insurance payments last week and consumer confidence improved.
Dovish Statement
“The market is digesting the information regarding the Federal Reserve,” Chad Morganlander, a money manager at St. Louis-based Stifel, Nicolaus & Co., which oversees about $160 billion in assets, said by phone. “We think this is a seriously dovish statement from the Federal Reserve and that the Fed is willing to accept inflation well above 2 percent before any action will be taken. The overall broader markets are sniffing that out.”
Among stocks moving on U.S. exchanges today, BlackBerry Ltd. jumped 13 percent after reporting a narrower loss than analysts had projected. Red Hat Inc. advanced 5.3 percent after increasing its annual revenue forecast. Starbucks Corp. climbed 1.9 percent after UBS AG boosted its rating on the world’s largest coffee-shop chain.
The Chicago Board Options Exchange Volatility Index, the gauge of S&P 500 options prices known as the VIX, fell yesterday to the lowest since February 2007. The index slid 1.6 percent to 10.44 today.
Commodity Rally
Commodities rose to a nine-month high as crude advanced after a government report showed U.S. inventories shrank and amid concern that violence in Iraq will disrupt supplies. The S&P GSCI gauge of 24 raw materials rose for a sixth day, climbing to the highest since Aug. 29.
Iraqi security forces expelled the rebel Islamic State in Iraq and the Levant, an al-Qaeda breakaway, from the Baiji refinery after overnight fighting, according to a police command statement. Exxon Mobil Corp. and BP Plc began removing employees from the country. Brent’s premium over WTI increased for a fourth day.
Zinc for deliver in three months climbed 0.7 percent to the highest level in almost 16 months in London on concern production will fail to keep up with demand amid supply curbs and shrinking inventories. Aluminum reached a one-week high.
Gold rallied 1.7 percent to $1,294.
Dollar Slump
Currencies jumped versus the dollar as a slump in foreign-exchange volatility to a record boosted demand for higher-yielding assets. The Philippine peso, Russian ruble, Malaysian ringgit and Indonesian rupiah gained at least 0.5 percent versus the U.S. currency.
JPMorgan Chase & Co.’s Global FX Volatility Index fell to 5.65 percent, the least since Bloomberg started collecting the data in 1992, helping fuel demand for carry trades, where investors seek to profit from differences in interest rates.
The euro gained 0.2 percent $1.3619, after climbing 0.4 percent yesterday. The dollar was little changed versus the yen.
Treasuries were little changed after the biggest advance in three weeks yesterday, when 10-year yields fell seven basis points to 2.58 percent.
Spain’s 10-year rate tumbled seven basis points to 2.69 percent and Italy’s dropped seven basis points to 2.90 percent. Australia’s 10-year yield declined eight basis points to 3.66 percent after earlier sliding to 3.64 percent, the lowest since May 29. Germany’s 10-year bund yield fell five basis points to 1.32 percent after sliding to 1.30 percent on May 16, the least in more than a year.
New Crisis
The search for yield amid low borrowing costs could sow the seeds of a new crisis, the two newest members of the Bank of England’s Monetary Policy Committee said yesterday. A key sign is the fact that Spain can borrow for 10 years at the same rate as Britain, said Kristin Forbes a professor at the Massachusetts Institute of Technology who will join the MPC next month.
The MSCI Emerging Markets Index advanced for a second day, adding 0.6 percent. Turkey’s benchmark gauge climbed 1.3 percent, the most in two weeks, and shares in South Africa’s main index climbed 1 percent to a record.
Chinese equities fell amid concerns new share sales will divert funds from existing holdings and a property slowdown will hurt economic growth. The Shanghai Composite Index dropped 1.6 percent, the biggest decline since April.
In Europe, Rolls-Royce Holdings Plc jumped 6.8 percent after the world’s second-largest maker of commercial aircraft engines said it will buy back 1 billion pounds ($1.7 billion) of its own shares. Man Group Plc rose 7.1 percent after the world’s largest publicly traded hedge-fund manager agreed to buy Numeric Holdings LLC.
Electricite de France SA lost 9.6 percent after French Energy Minister Segolene Royal said the utility won’t increase rates on Aug. 1.
To contact the reporters on this story: Stephen Kirkland in London at skirkland@bloomberg.net; Jacob Barach in New York at jbarach1@bloomberg.net
To contact the editors responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net Jeremy Herron, Stephen Kirkland
