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Stocks Rise With Portuguese Bonds as Treasurys, Gold Slip

Monday, 14 Jul 2014 11:34 AM

U.S. stocks rose with European equities on an increase in takeover activity and Citigroup Inc. earnings. Treasurys and gold retreated, while Portuguese bonds advanced.

The Standard & Poor’s 500 Index added 0.6 percent at 11:05 a.m. in New York, after the gauge’s biggest weekly drop since April. Citigroup jumped 3.7 percent after reporting adjusted profit that topped estimates. Goldman Sachs Group Inc. boosted its year-end target for the U.S. equities benchmark to 2,050. The Stoxx Europe 600 climbed 0.9 percent as Shire Plc gained on deal news. The yield on 10-year Treasurys rose two basis points to 2.54 percent. Portugal’s 10-year securities headed for the steepest two-day gain in a month. Gold was poised for the biggest drop in almost seven months.

Citigroup took a $3.8 billion pretax charge in its second-quarter results as it settled a mortgage probe. Companies from Goldman Sachs Group Inc. to Intel Corp. and Johnson & Johnson report earnings this week. Shire agreed to recommend the latest bid from AbbVie Inc. to its shareholders, while Abbot Laboratories said it will sell its generic-drug business. European Central Bank President Mario Draghi will speak to lawmakers in Strasbourg after announcing a package of measures last month to shore up the economy.

“The second-quarter earnings season in the U.S. is likely to be the next major driver of global markets,” Evan Lucas, a markets strategist in Melbourne at IG Ltd., wrote in an e-mail to clients today. “With all the major U.S. banks reporting this week, the market will get the best view of the ‘self-sustaining’ U.S. economy that the Fed now sees.”

Citi Earnings

The S&P 500 slid 0.9 percent last week amid signs of financial stress at a Portuguese bank and speculation that the recent rally is overdone. Profit at S&P 500 companies probably rose 4.5 percent in the three months through June, while sales gained 3.1 percent, analyst estimates compiled by Bloomberg show.

Citigroup climbed 3.7 percent. The third-largest U.S. bank by assets reported adjusted earnings of $1.24 per share. Analysts projected earnings at $1.05, according to a Bloomberg survey.

Goldman Sachs raised its S&P 500 forecast for 2014 today to 2,050 from 1,900. Rising earnings and faster economic growth will push equities higher and stocks are still attractive relative to bonds, according to a research report from David Kostin, chief equity U.S. strategist at the bank.

“Earnings generally are coming in pretty positively here and revenues are as well,” said Timothy Ghriskey, chief investment officer at New York-based Solaris Asset Management LLC, in a phone interview. “It’s a very early stage in this earning’s season to declare victory, but the indications look good here. Citi’s numbers are very strong.”

Central Banks

Investors will also be watching statements from central banks and economic reports this week for clues to the strength of the global economy.

Federal Reserve Chair Janet Yellen is due to testify to U.S. lawmakers. Yellen will deliver her semi-annual monetary policy testimony to the Senate Banking Committee tomorrow and to the House Committee on Financial Services the following day.

Minutes of the Fed’s June meeting released last week showed officials have agreed they’ll end their asset-purchase program in October if the economy holds up. At the same time, the policy makers said the central bank should continue to support favorable financial conditions needed to sustain growth, according to the minutes.

Draghi may address the ECB’s targeted lending program for banks that aims to boost credit for the real economy. The so-called TLTRO program, part of a wider package of measures announced in June, offers as much as four years of low-cost funding tied to bank lending that Draghi said this month could ultimately provide as much as 1 trillion euros.

Europe Stocks

The Stoxx Europe 600 Index climbed 0.9 percent as all 19 industry groups rose, with trading volumes 14 percent lower than the 30-day average, data compiled by Bloomberg show. The gauge slid 3.2 percent last week, its biggest weekly drop since March.

Shire Plc advanced 1.8 percent after the U.K. drugmaker said it’s willing to back a 31.4 billion-pound ($53.7 billion) takeover by AbbVie Inc. Rolls-Royce Holdings Plc rose 1.6 percent after Airbus Group NV said it will use the U.K. company’s engines to upgrade its A330 plane. Airbus was little changed.

Meda AB, the Swedish producer of allergy medicine, fell 4.5 percent. Mylan Inc. is buying Abbott Laboratories’ generic-drug business and forming a new company that will be incorporated in the Netherlands. Mylan rose 2.6 percent.

Merger Monday

“It looks like this is another merger Monday, which could be adding to optimism we’re seeing today,” Jeffrey Saut, chief investment strategist at Raymond James & Associates Inc., said by phone. Raymond James oversees $450 billion in assets. “You had all these mergers and takeover announcements over the weekend. It’s not just here in the U.S., it’s been a global phenomenon throughout the first half of this year.”

Banco Espirito Santo SA tumbled 8.5 percent and its subordinated bonds fell to a record. The bank’s parent sold a 4.99 percent stake to meet loan repayments and the firm named Vitor Bento chief executive officer today. Financial troubles at the group sparked concern last week that the region was vulnerable to financial shocks, triggering a selloff that helped erase $1 trillion from the value of global equities.

“Last week was a reminder that the European financial crisis is far from over,” said Christian Zogg, who manages the equivalent of about $11 billion as head of equity and fixed income at LLB Asset Management AG in Vaduz, Liechtenstein. “The Portuguese bank Espirito Santo was doing some harm to sentiment. The situation seems to be under control so far.”

Portugal Bonds

Portugal’s 10-year yield fell six basis points to 3.81 percent. The rate is down 18 basis points in the past two trading days, the biggest drop since the period through June 9.

The MSCI Emerging Markets Index added 0.4 percent, advancing after the first weekly decline in three. The Shanghai Composite Index added 1 percent, the most in a month, and the Hang Seng China Enterprises Index of mainland shares traded in Hong Kong added 0.8 percent. Thai shares extended the longest winning streak in almost four years.

China’s economy, the world’s second-largest, probably expanded 7.4 percent in the three months to June 30 from a year earlier, according to the median of 44 economists’ estimates compiled by Bloomberg before data scheduled for July 16.

The ruble retreated 0.4 percent per dollar and the Micex Index slipped 1.1 percent. Russia and Germany called for a resumption of Ukraine crisis talks after an artillery shell landed in Russian territory, killing one person.

Yen Weakness

The yen fell against all of its 16 major peers amid speculation central banks will maintain accommodative monetary policy that boosts demand for higher-yielding assets.

The Japanese currency declined 0.2 percent to 101.585 per dollar. It fell 0.4 percent to 138.41 per euro. The 18-nation shared currency rose 0.1 percent to $1.3620.

Gold dropped 2.1 percent to $1,309.50, headed for the biggest drop since Dec. 19. The metal will be lower by the end of December as the economy improves, Jeffrey Currie, head of commodities research at Goldman Sachs, said in a July 11 interview. Currie expects prices will be $1,050 by the end of 2014, maintaining a forecast from the start of the year.

The Bloomberg Commodity Index fell as much as 0.4 percent to the lowest since Feb. 13, dropping for a seventh consecutive day in the longest streak since June 28.

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U.S. stocks rose with European equities on an increase in takeover activity and Citigroup Inc. earnings.
stocks, gold, bonds, China
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2014-34-14
Monday, 14 Jul 2014 11:34 AM
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