S&P500 Erases 2015 Loss, Euro Weakens on Stimulus Bets

New York (Jan 8)  U.S. stocks advanced, with the Standard & Poor’s 500 Index briefly erasing its loss in 2015, as the Federal Reserve signaled caution on rates even as growth shows signs of accelerating. European shares rallied and the euro sank on speculation the area’s central bank will boost stimulus.

The S&P 500 jumped 1.6 percent at 11:55 a.m. in New York, extending a two-day rally to 2.8 percent. The Dow Jones Industrial Average climbed 1.7 percent to erase its 2015 declines. The MSCI All-Country World Index rose 1.9 percent and the Stoxx Europe 600 rallied 2.8 percent, the most in three weeks. The euro reached its lowest level against the dollar since 2005 and Treasuries fell for a second day. Oil fluctuated after rebounding from the lowest price since April 2009.

Relief that Fed minutes signaled no change in interest-rate policy and optimism on employment growth helped break a five-day slide in the American equity benchmark. Jobless claims fell last week, data showed today, before tomorrow’s monthly payrolls report. Data in Europe indicated producer prices slid more than analysts anticipated and German factory orders fell more than forecast in November, bolstering the case for expanded measures to shore up the economy.

“The New Year hangover has finally cleared,” said Justin Urquhart Stewart, who helps oversee about $10 billion at Seven Investment Management LLP in London. “Yesterday’s turnaround broke the negative line of falls and has given a chance to push back against poor sentiment. There should be a positive fillip to the market.”

Equities Rebound

The S&P 500 (SPX) has gained 2.8 percent over two days, following the worst start to a year since 2008. The benchmark index has recovered more than half its losses after tumbling 4.2 percent over the previous five days as crude oil plunged below $48 a barrel for the first time since 2009.

Oil fluctuated today as investors weighed whether the sell-off was excessive, amid speculation that U.S. production growth may slow. Forecasters from Bank of America Corp. to UBS AG say there are no clear signs of an end to the rout that’s sent oil prices down more than 50 percent since June.

West Texas Intermediate crude was unchanged at $48.65 a barrel in New York. Brent slid 0.7 percent to $50.79 in London.

Most Fed officials agreed their new policy guidance means they are unlikely to raise interest rates before late April and a number expressed concern inflation could remain too low. The minutes also showed some Fed officials are concerned about risks posed by overseas economies. Policy actions by foreign central banks may help, the minutes said.

Those sentiments were echoed in comments yesterday by Fed Bank of Chicago President Charles Evans.

Rate Catastrophe

“I don’t think we should be in a hurry to increase interest rates,” Evans said during a discussion with Lars Peter Hansen, a Nobel prize-winning economist at the University of Chicago. Later in the presentation, Evans said such a move to tighten too soon would be a “catastrophe.”

The Bloomberg Dollar Spot Index fluctuated near the highest close on record as U.S. jobless claims decreased by 4,000 to 294,000 in the week ended Jan. 3, adding to signs of an improving labor market. Europe’s common currency weakened for a fifth day, the longest stretch since May.

The euro slipped 0.3 percent to $1.1808 and reached $1.1754, the weakest level since December 2005. It was little changed at 141.20 yen. The dollar appreciated 0.3 percent to 119.57 yen, extending yesterday’s 0.7 percent advance.

The factory data from Germany, which narrowly avoided a recession in the middle of 2014, added to evidence of Europe’s economic slump and strengthened the case for more asset purchases by the European Central Bank, which next decides on interest rates on Jan. 22.

Draghi Letter

European shares extended gains today after ECB President Mario Draghi said in a letter published on the bank’s website that policy makers’ may add measures that include buying sovereign bonds.

“Market participants expect quantitative easing from the ECB,” said Christoph Riniker, head of strategy research at Julius Baer Group Ltd. in Zurich. “After the ECB meeting and Greek elections, there is certainly some uncertainty that will leave the market. QE equals sentiment boost, which equals help for peripherals.”

The Stoxx 600 erased its loss for 2015 after yesterday snapping a three-day drop before a Bloomberg News report that lawmakers in Chancellor Angela Merkel’s coalition said Germany is leaving the door open to debt-relief talks with Greece’s next government.

Greek bonds jumped today, with three-year note yields tumbling 162 basis points to 13.99 percent.

Greek Elections

The Stoxx 600 is still down 2.5 percent from a Dec. 5 high as energy shares slumped and concern grew over Greece as Prime Minister Antonis Samaras said this month’s election could lead to its exit from the euro area.

Treasury 10-year note yields rose five basis points, or 0.05 percentage point, to 2.01 percent, as a new-year rally in sovereign bonds around the world paused.

Bonds in the Bank of America Merrill Lynch Global Broad Market Sovereign Plus Index had an effective yield of 1.25 percent yesterday, climbing back from the record low of 1.244 percent set the day before.

Stocks in developing nations gained for a second day, with the MSCI Emerging Markets Index climbing 2 percent, the most on a closing basis in three weeks.

Russian stocks and the ruble advanced as trading resumed following a holiday yesterday. The ruble strengthened 4.6 percent, rebounding from the lowest close in three weeks, and the Micex Index climbed 4.5 percent.

Oil Producers

Shares in the Middle East rose for a second day, trimming this week’s losses. The Dubai Financial Market Index (DFMGI) jumped 2.1 percent, leaving it 2.6 percent lower in the five-day period. Qatar’s benchmark gauge climbed 3.4 percent, Abu Dhabi’s ADX General Index added 1.2 percent and Saudi Arabia’s Tadawul All Share Index increased 1.9 percent.

Chinese stocks retreated as forecasts for declines by Bank of America Corp. and HSBC Holdings Plc fueled concern that the benchmark index’s rally to a five-year was overdone. The Shanghai Composite Index (SHCOMP) fell 2.4 percent to close at 3,293.46 at the close, the biggest loss since Dec. 23. HSBC predicts the gauge will end the year at 3,100, while Bank of America targets 3,000 for the measure.

Copper advanced for the first time this year on signs that U.S. borrowing costs will remain low and China is boosting infrastructure investments.

Gold rose 0.2 percent to $1,213.30 an ounce. Silver slid 0.5 percent.

World food prices tracked by the United Nations slid to a four-year low last month as costs fell for foodstuffs from sugar to milk.

The strengthening of the U.S. dollar against other currencies is curbing importers’ demand for products including meat and grain priced in greenbacks, the UN’s Food & Agriculture Organization said in a report on its website today. At the same time, the plunging price of crude oil has reduced demand for crops including sugar and palm oil used in biofuel, it said.

Source: Bloomberg