BLBG: European Stocks Rally With Bonds as Euro Weakens on ECB
Stocks rose in Europe and Asia while bond yields fell to record lows from Italy to Spain as the European Central Bank’s expansion of asset purchases sent the euro to an 11-year low. Standard & Poor’s 500 Index futures were little changed after the gauge reversed this month’s losses.
The Stoxx Europe 600 Index added 1.6 percent at 8:40 a.m. in New York, and shares in Asia gained for a fifth day. S&P 500 futures erased earlier gains after United Parcel Service Inc.’s preliminary earnings missed estimates. The bond rally sent Italy’s 10-year borrowing costs below 1.5 percent for the first time. The euro weakened 1.4 percent to $1.1174. Oil in New York fell 0.3 percent to $46.15 a barrel while copper sank 2 percent after manufacturing contracted in top user China.
ECB President Mario Draghi unveiled a quantitative-easing program valued at 1.14 trillion euros ($1.3 trillion) on Thursday and pledged to spend until there’s a “sustained adjustment” in inflation. Oil erased gains in New York following the death of King Abdullah of Saudi Arabia as his successor said policies won’t change in the world’s largest crude exporter. The euro’s drop was exacerbated by concern an anti-austerity party will take power in Greece after elections Sunday.
“The strong commitment from Draghi to wipe out fears about the euro zone’s sustainability is good news,” said Pierre Mouton, who helps oversee $8 billion at Notz, Stucki & Cie. in Geneva. “Liquidity to the banking system should improve credit conditions, and thus economic growth. That will benefit equities. The ECB has given a time frame and the size of its QE is very helpful. Investors know they’ll be helped by the ECB for the next 18 months at least.”
U.S. existing home sales probably rose in December, while an index of leading indicators slipped, economists said before reports today. UPS dropped 5.9 percent in early New York trading.
Portugal Telecom
Three shares gained for every one that declined in the Stoxx 600, with trading volumes almost double the 30-day average, data compiled by Bloomberg show. The gauge has climbed 5.4 percent this week, heading for its biggest weekly jump December 2011 and extending a seven-year high.
Under the stimulus program, the ECB will purchase 60 billion euros a month through September 2016, which will probably comprise about 45 billion euros in investment-grade sovereign bonds, 5 billion euros in the debt of euro-area public agencies and 10 billion euros under existing programs to buy asset-backed securities and covered bonds, a euro-area official said.
Portugal Telecom SGPS SA jumped 18 percent and Altice SA advanced 5.8 percent after shareholders of the Portuguese carrier approved the sale of Oi SA’s Portuguese telecommunications assets to Altice, paving the way for consolidation in Brazil’s phone market. Telecom Italia SpA, which controls Tim Participacoes SA in the South American nation, climbed 5 percent.
O2 Talks
Telefonica SA added 3.1 percent as Hutchison Whampoa Ltd. has entered exclusive negotiations to buy its U.K. wireless carrier O2.
Thales SA fell 4.1 percent after saying it expects a reduction in 2014 profit because of losses at DCNS, the warship maker in which it owns a 35 percent stake.
The S&P 500 erased its losses for the year on Thursday, closing at its highest level since Dec. 30. The gauge has risen 2.2 percent in the past three days, heading for its first weekly advance of 2015.
About 79 percent of the 82 companies in the S&P 500 that have posted earnings this season have beaten analyst estimates, while 52 percent topped sales projections, data compiled by Bloomberg show.
Emerging Markets
The MSCI Emerging Markets Index advanced for a fourth day, rising 0.8 percent to the highest since Dec. 4. The gauge rallied 3.6 percent this week, the most since March.
The Shanghai Composite Index added 0.3 percent, leaving it 0.7 percent lower over five days and ending a 10-week rally. The Hang Seng China Enterprises Index (HSCEI) of mainland companies listed in Hong Kong advanced 1.8 percent, sending the gauge to its first weekly gain in three weeks.
The preliminary China purchasing managers’ index from HSBC Holdings Plc and Markit Economics was at 49.8 in January, up from 49.6 a month earlier and exceeding the median estimate of 49.5 in a Bloomberg survey. Numbers below 50 indicate contraction.
Russia’s Micex advanced 1.5 percent while the ruble weakened 0.6 percent. The currency erased an earlier advance after Interfax news service reported Donetsk rebels ruled out truce talks with Ukraine.
Bonds Rally
Bonds surged across the euro area on speculation the ECB will need to pay higher prices to convince holders of the securities to sell them.
Germany’s 10-year yield fell as much as nine basis points, or 0.09 percentage point, to a record 0.359 percent while rates on the nation’s 30-year debt approached 1 percent. Portugal’s 10-year yield fell 18 basis points to 2.41 percent.
The rally spread top debt markets around the world on bets the drop in yields on European bonds would push investors to seek alternatives overseas. The 10-year gilt yield reached 1.44 percent, the least since August 2012. Treasury 10-year note yields dropped four basis points to 1.83 percent.
Credit-default swaps insuring against losses on European government debt headed for a second weekly decline. Contracts on Spanish, Italian and Portuguese debt fell to the lowest levels in at least two months, while contracts on Germany were little changed.
Greek Elections
Greece’s bonds also rose before a general election in the nation on Jan. 25. The three-year note yield dropped 70 basis points to 9.64 percent.
Concern an anti-austerity party will take power in Greece exacerbated the euro’s drop after the ECB widened its stimulus program. The currency fell to as low as $1.1115 and reached 74.28 British pence, the weakest level since 2008.
Australia’s dollar slid below 80 U.S. cents on rising speculation the central bank will cut interest rates next month. Norway’s krone weakened 1.6 percent against the greenback to 7.7873.
(The headline on a previous version of this story was corrected to remove an erroneous reference to the euro.)
To contact the reporters on this story: Nick Gentle in Hong Kong at ngentle2@bloomberg.net; Stephen Kirkland in London at skirkland@bloomberg.net
To contact the editors responsible for this story: Stephen Kirkland at skirkland@bloomberg.net; Stuart Wallace at swallace6@bloomberg.net Stuart Wallace
