Stocks climbed, extending a rebound from a nine-day, $7.8 trillion rout in global equities, and commodities rallied, with oil rising from a 10-month low, after the Federal Reserve pledged to keep interest rates near zero through mid-2013. The franc slid after Switzerland’s central bank expanded efforts to fight the currency’s strength.
The MSCI All-Country World Index jumped 1.3 percent at 4:05 p.m. in Tokyo, adding to yesterday’s 2.1 percent gain. Standard & Poor’s 500 futures fell 0.3 percent, while Treasury 10-year yields were little changed at 2.25 percent after earlier gaining as much as seven basis points. The franc slipped against 11 of its 16 major counterparts. Crude rose 3.7 percent in New York and copper advanced for the first time in six days.
Fed Chairman Ben S. Bernanke and his colleagues vowed to keep borrowing costs at an all-time low and discussed a range of policy tools to bolster the economy, saying they are prepared to use them “as appropriate.” Analysts surveyed by Bloomberg say China and Australia may leave rates unchanged for the rest of this year, adding to signs policy makers will take steps to spur growth and restore confidence amid the global market turmoil.
“Stocks became oversold on the back of global growth worries” Shane Oliver, the Sydney-based head of investment strategy at AMP Capital Investors Ltd., which has $100 billion under management, said in a Bloomberg Television interview. “We’re due for a bounce and Bernanke has provided that.”
Stocks Rebound
The MSCI All-Country World Index climbed 2.1 percent yesterday following a 15 percent slump in the nine days ended Aug. 8. The Stoxx Europe 600 Index added 1.1 percent and the MSCI Asia Pacific Index gained 2.1 percent, halting a six-day, 13 percent slump. Japan’s Nikkei 225 Stock Average rose 1.1 percent and Australia’s S&P/ASX 200 Index jumped 2.8 percent.
South Korea’s Kospi Index (KOSPI) surged as much as 4.2 percent after the government banned short selling for three months and the two biggest state-run pension funds said they may boost equity investments. The measure pared gains to end the day 0.3 percent higher, with a South Korean defense ministry official saying after the market close its military fired two artillery shells into waters near its disputed western sea border with North Korea today after hearing three shells from the north.
The cost of credit-default swaps insuring South Korean government debt from default rose three basis points to 128.5 basis points, Royal Bank of Scotland Group Plc prices show.
Tokyo Electric Power Co. rallied 15 percent after the utility said there was no chance of insolvency even after a 572 billion yen ($7.4 billion) quarterly loss. Zijin Mining Group Co. climbed 7.2 percent in Hong Kong after China’s largest gold producer by market value reported first-half profit that beat analyst estimates.
U.S. Rebound
The S&P 500 jumped 4.7 percent yesterday, the most since March 2009. The U.S. gauge rebounded from a 6.7 percent sell-off on Aug. 8 that was spurred by S&P’s unprecedented downgrade of the U.S. government’s credit rating to AAA to AA+. The reduction left America’s rating above countries such Japan and China and wasn’t matched by Fitch Ratings and Moody’s Investors Service, which affirmed the U.S. at the top grade.
Treasury 10-year yields briefly fell to record low of 2.03 percent yesterday following the Fed statement before closing at 2.25 percent. The spread between two- and 10-year yields is at the narrowest since October after the Fed offered a dimmer view of the economy than it did in the last statement in late June, saying that it expects a “somewhat slower pace of recovery over coming quarters.”
Fed Decision
The rate decision represents the biggest effort since November to spark the U.S. economy and revive confidence. The Fed stopped stopping short of initiating further large-scale asset purchases, following the completion of the second round of so-called quantitative easing in June, in which it bought $600 billion of government bonds.
The Treasury is scheduled to sell $24 billion of 10-year notes today and $16 billion of 30-year debt tomorrow. Yesterday’s sale of $32 billion in three-year notes drew stronger-than-average demand, with a bid-to-cover ratio of 3.29. That compares with an average of 3.15 for the past 10 sales.
“We’re starting the process of finding a bottom after the panic,” James Paulsen, chief investment strategist at Minneapolis-based Wells Capital Management, said on Bloomberg TV. “I like what the Fed did. They took a calmer approach and said, we’re going to pay attention to the economy, and the market, you’re on your own. That was a vote of confidence.”
Franc’s Strength
Switzerland’s franc slumped after the SNB said it will significantly increase the supply of liquidity to the Swiss franc money market and will conduct foreign exchange swap transactions. The Swiss currency fell to 72.30 centimes per dollar, after surging yesterday to a record high of 70.71 centimes, and has gained 23 percent this year against a basket of nine developed-market peers, according to Bloomberg Correlation-Weighted Currency Indexes, amid demand for a haven.
Australia’s dollar was little changed at $1.0353. The currency, which fell yesterday below parity with the U.S. dollar since March, erased earlier gains of as much as 0.6 percent after a Westpac Banking Corp. and Melbourne Institute survey showed consumer confidence slumped this month to its lowest in more than two years.
The Reserve Bank of Australia will maintain borrowing costs at 4.75 percent until the first quarter of next year, according to the median of 22 estimates in a Bloomberg News survey. A poll six days ago showed the consensus was for a quarter percentage point increase on Nov. 1. Interbank cash-rate futures indicate the RBS’s key rate may fall to 3.49 percent by December from 4.75 percent.
Asian Rates
Central banks elsewhere in Asia may also delay interest- rate increases. The People’s Bank of China will leave borrowing costs unchanged for the rest of this year, according to eight of 10 analysts surveyed yesterday. Economists’ median forecast is for South Korea to extend a pause for a second month tomorrow, while Indonesia stayed on hold yesterday.
Crude for September delivery rose to $82.22 a barrel on the New York Mercantile Exchange, recovering from a two-day, 8.7 percent slump. U.S. crude inventories declined the most since June, according to the industry-funded American Petroleum Institute. Gasoline inventories also fell.
Metals gained on the London Metal Exchange, with three- month delivery copper climbing as much as 3.1 percent to $9,005 a ton. The contract sank to an eight-month low yesterday. Nickel and zinc both increased more than 3 percent to $21,885 a ton and $2,171 a ton, respectively.
To contact the reporter on this story: Shiyin Chen in Singapore at schen37@bloomberg.net
To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net
