S&P500 Rises Most in 3 Months as Commodites Rally, Bonds Slip
New York (Aug 10) US stocks rose the most in three months on corporate deal activity and a rally in commodities. Gains in assets from oil to copper revived speculation the inflation rate may accelerate, sending Treasuries lower.
The Standard & Poor’s 500 Index gained 1.3 percent at 4 p.m. in New York, erasing all of last week’s decline as it gained the most since May 8. The Dow Jones Industrial Average halted its longest slide since 2011. Energy and mining shares surged as the Bloomberg Commodity Index jumped the most since June, and Apple Inc. headed for its best day since January. Oil advanced 2.5 percent in New York, and copper rallied 2.6 percent. The yield on 10-year Treasuries added seven basis points to 2.23 percent.
U.S. stocks are rallying after a selloff in some of the bull market’s biggest winners that was sparked by concern global growth is slowing with the Fed poised to raise benchmark rates. Commodities advanced from a 13-year low, with a surge in Chinese imports bolstering crude, while Federal Reserve Vice Chairman Stanley Fischer said stubbornly low U.S. inflation won’t persist with the economy near full employment.
“Energy prices have been guiding us up or down for a while and with energy names leading the way, nothing is really down,” Thomas Garcia, the head of equity trading at Santa Fe, New Mexico-based Thornburg Investment Management Inc., said by phone. “Investors want to get the rate hike done and move on, and with commodity prices moving up a little that’s a good thing, as they’ve gotten just decimated over the last year.”
The S&P 500 dropped 1.3 percent last week while the Dow posted its longest losing streak in four years, amid a slump in media and biotechnology shares and as Apple Inc. fell into a correction. The broader index began its recovery after touching its average price for the past 200 days, and closed Monday above the 50-day average.
Commodity Rebound
U.S. stocks also got a boost Monday as Warren Buffett’s Berkshire Hathaway Inc. agreed to buy Precision Castparts Corp. for $37.2 billion. That sent industrial shares higher by 1.9 percent. Apple rallied 3.6 percent to lift technology stocks.
Energy producers surged 3.1 percent after the group capped its 14th straight weekly decline amid plunge in oil prices. Crude on Monday climbed from the lowest level in almost five months in New York as Chinese crude imports rose to a record in July.
Resource stocks climbed 2.5 percent, the most this year, as copper rose from a six-year low. Torrential rains in Chile halted work at some of the world’s biggest mines, easing concerns over production surpluses. The metal lost 16 percent this year on prospects for rising global output and slower demand in China, the biggest user.
Speculation the Chinese government will start a new round of consolidation among state-owned companies sent the nation’s shares higher even as export data missed forecasts.
China Rally
The Shanghai Composite Index climbed 4.9 percent, the most in a month. The government may combine China Shipping Group and Cosco Group or merge some operations, according to people familiar with the matter, who asked not to be identified because the deliberations aren’t public.
“One of the biggest fears in the marketplace is not so much the Fed, it’s the slowdown in China,” Andrew Brenner, the head of international fixed income for National Alliance Capital Markets, said by phone. “If all of a sudden people think the Chinese are going to have serious stimulus, that’s going to turn things around.”
Fed Bank of Atlanta President Dennis Lockhart said the U.S. economy has made enough progress to warrant raising interest rates soon, even if incoming economic indicators are mixed. Reports this week include U.S. retail sales on Thursday, after data Friday showed a broad-based gain in hiring.
Traders are pricing in a 52 percent probability that the Fed will raise borrowing costs in September, based on the assumption that the effective fed funds rate will average 0.375 percent after the first increase. That’s up from a 38 percent probability a week ago.
Yields on Treasury 10-year notes extended their first advance in three days after the Fed’s Fischer said in a Bloomberg Television interview that the U.S. economy is near full employment even as inflation remains “very low.”
Done Deal
“If you just look at the fundamentals, a rate hike is a done deal and it’s just a question of when,” said Lutz Karpowitz, a senior currency strategist at Commerzbank AG in Frankfurt. “The Fed is the only central bank that’s going to hike in the very near future so one can draw a case where the dollar is becoming very strong.”
In Europe, stocks advanced as technology and resource companies rebounded, while investors speculated on the possibility of Chinese stimulus. The Stoxx Europe 600 Index climbed 0.6 percent, reversing earlier losses of as much as 0.7 percent.
Greece’s ASE Index rose for a third day, advancing 2.1 percent for the best performance among western-European markets. Banks led gains as policy makers expressed optimism that talks on a third bailout deal can be wrapped up by tomorrow.
Russia’s economy shrank the most since 2009 after a currency crisis jolted consumer demand, while a selloff in oil threatens to drag the country into a deeper recession.
SOURCE: Bloomberg
