BLBG: Stocks Advance as Treasuries Trim Losses Before Fed; Pound Gains
S&P 500 futures slip after U.S. equities jump on Tuesday
Two-year Treasury yields near their highest since 2011
Stocks rose, buoyed by rallies in the U.S. and China, and crude oil extended gains while Treasuries trimmed Tuesday’s losses amid the countdown to the Federal Reserve’s policy decision.
Russia’s ruble and Malaysia’s ringgit led gains in emerging-market currencies and Chinese stocks jumped in the last hour of trade to snap a two-day slump. The yield on 10-year Treasury notes fell after surging 10 basis points on Tuesday. The pound strengthened and gilts fell after U.K. wages grew at their fastest pace in more than six years, while the yen was little changed after Standard & Poor’s downgraded Japan.
Traders give a 32 percent chance of an increase in U.S. interest rates, up from as low as 26 percent on Monday but still well below the 50 percent odds before China roiled markets by devaluing the yuan last month. Stocks rallied on Tuesday and Treasuries fell after data indicated resilience among American consumers, signaling confidence in the world’s largest economy and supporting the case for a liftoff in rates.
“Part of me thinks markets would like the first increase over and done with,” said Ben Kumar, a fund manager who helps oversee about $14 billion at Seven Investment Management in London. “Even if nothing happens this time, we’re still going to be speculating about an October and December meeting. Once you’ve started on a path, it’s easier to move along.”
The Stoxx Europe 600 Index jumped 1.1 percent at 6:25 a.m. in New York, with trading volume 11 percent higher than the 30-day average. Japan’s Topix gained 0.7 percent. S&P 500 Index futures slipped 0.2 percent following a 1.3 percent rebound in the U.S. stock measure.
Economists are split on what action Fed policy makers will take Thursday. More than half of 111 analysts surveyed by Bloomberg predict no change, while 50 say the rate will be increased by 0.25 percentage point and four see a 1/8 percentage-point increase.
“Nobody’s sure about the Fed,” said said Kim Youngsung, the head of overseas investment in Seoul at South Korea’s Government Employees Pension Service, which manages $12.7 billion. “It’s an awkward situation. If they’re concerned about the Chinese economy or the global economy, including emerging markets, probably the Fed will delay. Just looking at the U.S. data, it’s OK to increase the rate.”
Beverage companies and luxury-goods makers lead gains in Europe. SABMiller Plc soared 23 percent after saying Anheuser-Busch InBev NV plans to make an offer in a deal that would bring together the world’s two biggest beermakers. The maker of Budweiser climbed 7.4 percent.
Richemont, the world’s biggest jewelry maker, climbed 6.5 percent after reporting sales growth accelerated as weaker currencies attracted big-spending tourists to Japan and Europe. Hermes International SCA and LVMH Moet Hennessy Louis Vuitton SE rallied more than 3 percent.
(For more news on stocks, see TOP STK.)
Emerging markets
The MSCI Emerging Markets Index added 1.5 percent, with benchmark gauges in South Africa and South Korea climbing at least 2 percent.
The Shanghai Composite Index jumped 4.9 percent amid speculation the scrapping of quotas on overseas borrowing by approved companies will help stem capital flight and lower borrowing costs. Hong Kong’s Hang Seng China Enterprises Index rose 3.1 percent.
The Shanghai Composite Index surged into the close
The Shanghai Composite Index surged into the close
The ruble climbed 1.3 percent and the ringgit gained 1.6 percent, with a gauge of 20 developing-nation currencies advancing for a seventh day.
South Korea’s won strengthened 0.9 percent to 1,176.03 per dollar, as a credit-rating upgrade by Standard & Poor’s added to investor confidence in the nation’s economy.
“It could be a risk-off for emerging-market assets” if the Fed holds off from raising rates but sends a hawkish message, Tim Condon, head of Asia research in Singapore at ING Groep NV. “Our baseline scenario is they don’t hike, that they want to hike in October and it would take something pretty bad to prevent them from hiking in October.”
(For more news on emerging markets, see TOP EM.)
Currencies
The Bloomberg Dollar Spot Index was little changed after a solid retail sales report propelled the measure that tracks the greenback against 10 of its major peers to a 0.3 percent gain on Tuesday.
The pound rose 0.3 percent to $1.5392. Total pay in the U.K. including bonuses rose an annual 2.9 percent in the three months to July, up from a revised 2.6 percent the previous month, the Office for National Statistics said Wednesday.
The euro weakened 0.3 percent as a report showed inflation in the common-currency area slowed almost to a standstill in August.
The yen was little changed at 120.40 per dollar after S&P downgraded Japan’s credit rating.
(For more news on currencies, see TOP FX.)
Bonds
Ten-year Treasury note yields fell one basis point to 2.28 percent, after closing at their highest level since July 22 on Tuesday. Yields on two-year notes, regarded as being more policy sensitive, were little changed at 0.81 after surging eight basis points last session to the highest since April 2011.
Gains in U.S. retail sales prompted investors to retreat from the securities that would be most affected if the Fed raises interest rates.
Rates on 10-year gilts jumped 5 basis points to 1.65 percent.
(For more news on bonds, see TOP BON.)
Commodities
Oil rose for a second day as U.S. industry data showed crude stockpiles declined by 3.1 million barrels last week in the world’s biggest consumer. West Texas Intermediate advanced 1.6 percent to $45.28 a barrel while Brent gained 1.2 percent to $48.33.
Industrial metals gained following a late rally in Chinese equities. Copper rose 0.3 percent to $5,370 a metric ton while nickel advanced 0.8 percent. Gold climbed 0.3 percent to $1,108.12 an ounce. Improving fundamentals for the metal will propel prices to about $1,200 an ounce by year-end, according to Capital Economics Ltd.
Wheat fell 0.6 percent to $4.92 a bushel, a second day of decline amid record stockpiles of the grain. Rains in the central and western plains of the U.S. should improve winter-wheat germination, MDA Weather Services said Tuesday.
