Tags: stocks | stimulus | Treasurys | markets

US, Europe Stocks Rally on Stimulus Bets While Treasurys Drop

Friday, 17 October 2014 04:49 PM

U.S. stocks rallied and European shares ended an eight-day losing streak on signs of more stimulus from central banks and improving earnings. Treasurys fell while junk bonds surged.

The Standard & Poor’s 500 Index climbed 1.4 percent at 1:44 p.m. in New York, trimming a fourth weekly decline. The Stoxx Europe 600 Index jumped 2.8 percent, for the biggest advance in almost three years. Ten-year Treasury yields rose 4 basis points to 2.20 percent. The iShares iBoxx $ High Yield Corporate Bond ETF soared 0.8 percent, the most in more than a year. The yen and euro each weakened 0.3 percent against the dollar. West Texas Intermediate oil advanced 0.4 percent.

The European Central Bank will start “within the next days” to purchase assets in the new program to support the economy, Benoit Coeure, an executive board member, said today in Riga. Morgan Stanley and General Electric Co. reported better- than-estimated earnings. U.S. data showed new home construction rose in September after slumping a month earlier, while consumer confidence unexpectedly rose in October to the highest level in seven years.

“Any news coming from the ECB in terms of its asset- purchase program will be quite positive and supportive to equity markets, especially after the recent selloff,” Guillaume Duchesne, an equity strategist at BGL BNP Paribas SA in Luxembourg, said by phone.

The MSCI All-Country World Index rallied 1.3 percent to snap a six-day slump, the longest losing streak since March.

Stocks worldwide have lost about $3.3 trillion in market value in October amid concern global growth is slowing as the U.S. winds up asset purchases. St. Louis Federal Reserve Bank President James Bullard said Thursday policy makers should consider delaying the end of bond buying.

ECB Stimulus

Pressure is mounting for European Central Bank stimulus such as government-bond purchases as the 18-nation euro area struggles to rebound from a sovereign debt crisis and subsequent austerity measures.

The S&P 500 has tumbled 6.2 percent since a record in mid- September, and is down 1 percent for the week. The index recovered yesterday from an early plunge, closing little changed after erasing a drop of as much as 1.5 percent. Data yesterday showed jobless claims unexpectedly dropped last week to their lowest level in 14 years, while industrial production rose in September by the most in almost two years.

“The market has a buy-the-dip mentality right now,” John Canally, an economic strategist at LPL Financial Corp. in Boston, said. “The disconnect between the sharp market drops this week and the pretty good U.S. fundamentals might’ve gotten some people interested in buying again. They’re in wait and see mode as they assess whether earnings will be supportive.”

Corporate Earnings

Morgan Stanley gained 2.4 percent after reporting earnings, excluding an accounting adjustment, of 65 cents a share, topping the 54-cent average estimate of 23 analysts surveyed by Bloomberg. GE rose 2.8 percent as cost cutting helped boost margins in the industrial business. Schlumberger Ltd. advanced 4.2 percent after the oil company posted profit that beat the average analyst projection.

Small-cap stocks retreated after an early rally. The Russell 2000 Index fell 0.1 percent, erasing a gain of 1.3 percent. The gauge surged 3.5 percent over the previous three sessions.

Only 21 companies fell in the Stoxx 600, with trading volumes 42 percent greater than the 30-day average, according to data compiled by Bloomberg. The gauge slid 7.7 percent in the previous eight days and is down 0.9 percent this week, its fourth consecutive loss and longest streak since June 2013.

All 19 industry groups in the Stoxx 600 rose. PSA Peugeot Citroen climbed 7 percent as the European Automobile Manufacturers’ Association reported growth in car sales last month.

Bonds Rally

Italian bond yields dropped 8 basis points to 2.50 percent and Greece’s government bonds rose, sending the 10-year yield down 87 basis points to 7.93 percent. That’s up from 6.60 percent at the end of last week after a four-day rout on concern the nation will struggle to raise funding without the support of international creditors. Portugal’s 10-year bonds rallied, pushing the yield 18 basis points lower to 3.29 percent.

German 10-year bunds fell, pushing the yield 4 basis points higher to 0.86 percent, as investors sought higher-yielding assets. The rate on 10-year Treasury notes increased 4 basis points to 2.20 percent.

Firms from Pacific Investment Management Co. to Blackstone Group LP say they are poised to scoop up speculative-grade corporate bonds after yields rose to the highest levels in more than a year. They’re looking for bargains after building up the highest levels of cash in almost three years.

“Credit is a buy here, specifically high yield” bonds and loans, Mark Kiesel, one of three managers who oversee Pimco’s $202 billion Total Return Fund, said yesterday in a Bloomberg Television interview.

Oil Gains

The yen fell on reduced demand for haven assets, weakening to 106.68 per dollar. The euro dropped 0.3 percent to $1.2775.

WTI oil climbed to $83.05 a barrel after jumping 1.1 percent yesterday. Goldman Sachs Group Inc. said the market isn’t oversupplied, and this week’s drop in prices was “too much, too early” because a glut is yet to materialize.

The MSCI Emerging Markets Index added 0.6 percent, trimming this week’s decline to 1.3 percent. The gauge is headed for a sixth straight weekly loss, the longest slump since June 2013.

Benchmark gauges in Russia, South Africa, Turkey, Hungary, the Czech Republic and Indonesia gained at least 1.2 percent today.

Ruble Advances

Russia’s Micex jumped 1.8 percent and the ruble strengthened 0.5 percent against the dollar, after reversing earlier losses. Russian currency-market interventions have topped $13 billion to stem the ruble’s slide to unprecedented lows after oil tumbled. Russia, which derives more than half of its budget revenue from energy, faces sanctions over the Ukraine crisis that have spurred a domestic dollar shortage.

Russian President Vladimir Putin wants to prevent the Ukrainian war from leading to the frozen conflict he’s maintaining in some former Soviet states, U.K. Prime Minister David Cameron said after a meeting in Milan. Putin and Ukrainian President Petro Poroshenko sat on either side of Italian Prime Minister Matteo Renzi at talks this morning also attended by the leaders of Germany, France, Italy.

This morning’s talks were “quite constructive,” Putin’s spokesman Dmitry Peskov told reporters. Ukrainian Foreign Minister Pavlo Klimkin said the talks are not easy, “but we have to achieve results.”

The Shanghai Composite Index dropped 0.7 percent while the Hang Seng China Enterprises Index of mainland companies listed in Hong Kong added 0.5 percent.

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U.S. stocks rallied and European shares ended an eight-day losing streak on signs of more stimulus from central banks and improving earnings. Treasuries fell while junk bonds surged.
stocks, stimulus, Treasurys, markets
Friday, 17 October 2014 04:49 PM
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