Tags: stocks | Europe | Draghi | oil

Most Stocks Rise Amid Small-Cap Rally; Brent Crude Tumbles

Thursday, 02 October 2014 04:56 PM

Most U.S. stocks rose, as small cap shares rebounded on speculation selling was overdone and as concern over Europe’s stimulus plan faded. Brent tumbled to the lowest since June 2012.

The Standard & Poor’s 500 Index was little changed at 4 p.m. in New York, erasing an earlier slide of 1 percent. The Russell 2000 Index jumped 1 percent as small caps rebounded from a selloff Wednesday. The Stoxx Europe 600 Index sank 2.4 percent, the most since June 2013. The euro rose as much as 0.6 percent, advancing for the first time in three days versus the dollar. Treasuries weakened after gaining the most in more than eight months Wednesday.

The European Central Bank left its main refinancing rate at 0.05 percent at its meeting in Naples, Italy on Thursday. Draghi said the central bank will buy assets for at least two years to boost inflation and economic growth in the euro area. U.S. jobless claims unexpectedly dropped last week. Pro-democracy leaders in Hong Kong said they will escalate protests if their demands aren’t addressed.

“People will come back to the market once they realize Europe is not falling a cliff and the U.S. economy is still pretty strong, but not so strong as to get the Fed to raise interest rates early,” Gary Black, global co-chief investment officer for Calamos Investments in Naperville, Illinois, said by phone. The firm oversees $25.6 billion. “We’re using this weakness to buy into names that got beaten up over the last week or so.”

Data Watch

The S&P 500 fell Wednesday to its lowest level since Aug. 12, while the Russell 2000 Index of smaller shares sank 1.5 percent to close more than 10 percent below its record in March amid signs of economic weakness in Europe and geopolitical turmoil. The S&P 500 has fallen 3.2 percent since a Sept. 18 record.

While Europe is stepping up its stimulus efforts, the U.S. is on course to halt its monthly bond-buying program this month. Investors have been analyzing economic reports for clues on whether growth will withstand the end of quantitative easing and higher interest rates.

The U.S. jobless claims data come before the government’s labor report on Oct. 3, which may show that payrolls added 215,000 workers in September after a 142,000 increase the month prior that was the smallest this year, according to the median estimate in a Bloomberg survey. The jobless rate probably held at 6.1 percent.

Europe Rout

The ECB’s asset-buying plan is part of a range of stimulus measures it has announced since June to fight the threat of falling prices in the 18-nation currency bloc. Inflation slowed to 0.3 percent last month, the least in almost five years, and the central bank’s preferred measure of medium-term inflation expectations has extended its decline.

Thursday’s decline left the Stoxx 600 down 4.8 percent from an almost six-year high on Sept. 4. All 19 of the index’s main groups sank at least 1.5 percent. Oil and gas producers plunged 4 percent, the most in three years, while banks tumbled 3.2 percent.

“Draghi did not bring out the big bazooka that the market had hoped for,” Peter Garnry, head of equity strategy at Saxo Bank A/S in Hellerup, Denmark, said by telephone. “Sentiment was already tilted to the downside on economic data and we are seeing an increasing likelihood of deflationary pressures. It seems that the market is interpreting Draghi’s words negatively and as not providing the salvation that was hoped for.”

Not Enough

The euro rose as investors curbed bets the central bank’s purchases would expand the ECB’s balance sheet enough to weaken the currency.

The euro added 0.3 percent to $1.2665 after touching $1.2571 on Sept. 30, the lowest level since September 2012. The yen appreciated 0.4 percent to 108.44 per dollar, having reached 110.09 Wednesday, the weakest since Aug. 25, 2008.

“The view is that what they’re doing is simply not enough with buying bond assets for the next couple of years,” Dan Veru, chief investment officer at Fort Lee, New Jersey-based Palisade Capital Management, said by phone. The firm oversees $5 billion in assets. “I wouldn’t want to underestimate them. I believe in Draghi and that he will do whatever it takes and I believe that will include some new tools.”

The global economy needs bold policies to avoid a “new mediocre” period of sluggish growth as the world struggles with a disappointing recovery six years after the financial crisis, the head of the International Monetary Fund said.

Continued Weakness

“We see continued weakness in the global economy,” IMF Managing Director Christine Lagarde said in a speech Thursday at Georgetown University in Washington. She cited “some serious clouds on the horizon,” including high unemployment and low inflation in the euro area, financial excesses building in advanced economies, and market and liquidity risks that are migrating to less-regulated parts of the financial system.

Treasuries gave back some of the biggest gain in eight months on speculation the performance of the U.S. labor market is strengthening. The benchmark 10-year yield rose five basis points, or 0.05 percentage point, to 2.43 percent.

Developing-nation stocks fell 0.4 percent to the lowest since April. The MSCI Emerging Markets Index is now down 9.8 percent since a Sept. 3 high. The measure has fallen 0.9 percent in 2014 and trades at 10.6 times projected 12-month earnings, data compiled by Bloomberg show.

Argentine bond and stock markets deepened their losses after the resignation of Central Bank President Juan Carlos Fabrega dimmed the prospect of a second peso devaluation this year.

Merval Rout

The Merval stock index sank 7.1 percent, bringing losses to 15 percent since President Cristina Fernandez de Kirchner on Sept. 30 publicly criticized the bank for allegedly leaking inside information.

The Micex Index tumbled 1.7 percent for a second day of losses. Russia’s central bank intervened for the first time since May to stem the world’s worst currency slide since June, ending the ruble’s five-day losing streak. The ruble gained 0.1 percent to 44.3072 against the central bank’s basket of dollars and euros.

The Jakarta Composite Index declined the most since April and the rupiah depreciated 0.2 percent after Indonesia’s parliament chose a house speaker that may challenge President- elect Joko Widodo’s plans to boost economic growth.

Equities in the Czech Republic, Poland and Hungary lost at least 1.1 percent. Hungary central bank Deputy Governor Adam Balog is set to speak at a conference on the nation’s economic outlook and banking sector.

Markets in China and India are shut for holidays.

West Texas Intermediate oil dropped below $90 for the first time in 17 months, before erasing losses, amid signs that global supplies are outstripping demand. WTI fell as much as 2.8 percent to $88.18 a barrel in New York, before settling 0.3 percent higher at $91.01.

Brent for November settlement slipped 0.8 percent, to end the session at $93.42 a barrel in London. It’s the lowest close since June 28, 2012.

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Most U.S. stocks rose, as small cap shares rebounded on speculation selling was overdone and as concern over Europe's stimulus plan faded. Brent tumbled to the lowest since June 2012.
stocks, Europe, Draghi, oil
Thursday, 02 October 2014 04:56 PM
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