BLBG: Stocks Advance on Stimulus Bets as Investors Bail on Bonds, Yen
Pound rises with U.K. on cusp of getting a new prime minister
MSCI All-Country Index rises to highest level since June 24
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Global stocks advanced for a fourth day and commodities rose, buoyed by the prospect of stimulus in major economies. Government bonds sank with the yen.
The MSCI All-Country World Index reached its strongest level since June 24, while S&P 500 Index futures indicated U.S. equities would extend an all-time high. The yen had its biggest two-day slide since 2014 after Japanese Prime Minister Shinzo Abe vowed to speed up efforts to defeat deflation. The pound rose for a third day as Home Secretary Theresa May prepared to take over as the U.K.’s next prime minister. Daimler AG led gains in European stocks. U.S. crude rebounded from a two month low.
Global equities are almost back to where they were when the U.K. voted for Brexit. Since then, futures traders have cut wagers on higher interest rates from the Federal Reserve while Abe won an election and said he would order ministers to begin compiling fresh stimulus. The majority of economists expect the Bank of England to cut interest rates this week and traders are betting there will be further monetary easing in the euro area this year.
“Risk appetite is in the ascendancy, and as a consequence we are seeing higher-yielding currencies rally and haven currencies including the yen decline,” said Jeremy Stretch, London-based head of foreign-exchange strategy at Canadian Imperial Bank of Commerce. “It’s a case of hopes for additional Japanese fiscal stimulus. The U.K. has seen some political risk removed.”
Stocks
The Stoxx Europe 600 Index rose 1 percent as of 8:41 a.m. New York time, after surging 4.4 percent over the last three trading days. Japan’s Topix climbed 2.4 percent and the MSCI Asia Pacific Index gained 1.2 percent.
Daimler AG jumped 4.7 percent, the most since August 2015 on a closing basis, after posting a 5.6 percent increase in adjusted earnings. The company’s full-year forecasts now look more achievable, Goldman Sachs Group Inc. said in a note.
A gauge of European commodity companies headed for the highest level since October after Goldman boosted its price forecasts for most industrial metals. The U.K.’s FTSE 100 Index reached its highest level since August 2015
Futures on the S&P 500 added 0.5 percent following the gauge’s 0.3 percent advance to an all-time high on Monday. Alcoa Inc. rose 4.4 percent in pre-open trading on Tuesday, after the company unofficially kicked off the U.S. earnings season after markets closed Monday, reporting profit for the second quarter that topped analysts’ estimates.
The MSCI Emerging Markets Index rose for a fourth day, adding 0.7 percent to the highest intraday level since April. Thailand’s SET Index edged up 0.4 percent, extending its increase from a January low this year to 20 percent
Currencies
Japan’s currency fell 1 percent to 103.85 per dollar, adding to a 2.3 percent decline from the day before.
Sunday’s election, which saw Abe’s ruling group score a convincing victory in the upper house, “opens up the scope for sweeping reforms,” said Mark McCormick, North American head of foreign-exchange strategy at Toronto-Dominion Bank. “The Bank of Japan is likely to add to the macroeconomic stimulus package by easing monetary policy along with a more supportive fiscal environment.”
The pound rose 1.1 percent as May’s confirmation as the only remaining candidate to replace David Cameron removed a layer of political uncertainty.
For more on Theresa May’s succession of David Cameron, click here.
The Australian dollar rallied 1.2 percent, the best performance among 31 major currencies, as a report showed business confidence picked up last month and investors favored higher-yielding currencies.
The MSCI Emerging Markets Currency Index added 0.1 percent. Mexico’s peso led gains, advancing 0.7 percent. South Africa’s rand climbed 0.6 percent.
Commodities
Crude oil climbed 2.6 percent to $45.92 a barrel in New York before data forecast to show U.S. inventories fell for an eighth week. Prices rose as a weaker dollar boosted the appeal of commodities while further disruptions worsened supply problems in Nigeria.
Nickel jumped 2.9 percent to $10,340 a metric ton in London amid speculation of supply cuts in the Philippines, the biggest ore producer, as the government threatens to close mines that don’t meet environment and safety standards. Goldman sees the price climbing to $12,000 over the next six months as the bank increased its price forecasts for most industrial metals through 2017. Copper, lead and zinc all gained more than 1 percent.
Steel rebar jumped as much as 5.8 percent in Shanghai as the production hub of Tangshan city in China’s Hebei province was said to be restricting output before a memorial event. Iron ore climbed 5.9 percent in Singapore.
Bonds
The yield on Treasuries due in a decade increased five basis points to 1.48 percent, after climbing seven basis points on Monday as an auction of three-year notes attracted the weakest demand since 2009. Gains last week week pushed 10- and 30-year yields to record lows.
The U.S. is due to sell $20 billion of 10-year notes Tuesday, followed by $12 billion of 30-year bonds Wednesday.
“We are already very much playing it from the short side,” as the U.S. economy shows signs of improving, Larry Hatheway, chief economist and head of multi asset portfolio solutions at GAM Group, said of his company’s stance toward Treasuries during an interview with Anna Edwards and Manus Cranny on Bloomberg Television’s "Countdown" program. “Bond yields are too low and should be higher. That’s how we are positioned.”
Benchmark German 10-year bonds, perceived to be among the safest debt securities in the euro area, declined for a second day, pushing the yield up by four basis points to minus 0.12 percent. Yields on French securities with a similar due date increased four basis points to 0.16 percent. U.K. 10-year yields rose two basis points to 0.77 percent.
One risk of low interest rates is “a snap back in yields because of changes in growth and inflation expectations,” Bank of England Governor Mark Carney said in testimony to U.K. lawmakers on Tuesday. “A variety of factors could cause a snap back; you have to make sure the institutions are prepared both in capital and risk management for that tail event.”
India’s bonds rallied, pushing their yield down by six basis points to 7.33 percent. The rally was “sparked” by hopes that the central bank will adopt a more dovish policy once a new governor takes over, said Vijay Sharma, executive vice-president for fixed income at PNB Gilts in New Delhi.
The Markit iTraxx Europe Index of credit-default swaps on highly rated companies dropped two basis points to 73 basis points. A measure of swaps on junk-rated businesses declined eight basis points to 326 basis points.
Europe’s bond markets were set for the busiest day of issuance in at least five weeks. Sellers included the European Stability Mechanism and BNP Paribas SA.
