US Stocks Advance as Commodities Retreat on Dollar Strength

New York (July 24)  US stocks rose, sending the S&P 500 Index to a record, and the dollar strengthened as speculation mounted that central banks from Japan to Europe won’t be in a rush to add to unprecedented stimulus. Emerging-market assets and commodities retreated.

The S&P 500 capped a fourth weekly gain as a preponderance of earnings reports topped estimates. Verizon Communications Inc. climbed after Bloomberg News reported the phone company was close to acquiring Yahoo! Inc. The pound dropped after U.K. business activity contracted following the Brexit vote. Commodities from oil to copper sank as the dollar strengthened. Brazil’s real fell as the central bank extended its intervention, while the Ibovespa rose for a sixth weekly gain.
Investors turned to U.S. assets amid a reduction in bets on how quickly central-bank intervention in Asia and Europe would come. Expectations for lower rates or additional bond buying had sparked a three-week rally in global equities that added more than $4.5 trillion in value. On Friday euro-area officials familiar with the matter indicated the region’s central bank sees no urgent need to adjust or expand a bond-buying program in September, while Japan’s policy makers were said to be concerned about using unusual easing.

That shifted focus toward corporate results as investors look for evidence that signs of economic growth is adding to profits at a time when political uncertainty remains high, as Donald Trump completed his hostile takeover of the Republican Party with one of the most ominous speeches of his campaign.

“It’s been a bit of a mixed bag, but you have to say that the earnings reports have been positive overall,” said Chuck Self, chief investment officer of iSectors LLC, an Appleton, Wisconsin-based asset manager. “There’s certainly no trend to the negative in the earnings reports at all. There is a question of valuations out there and with interest rates so low, it’s hard to figure out whether it’s true to value.”

Stocks

The S&P 500 rose 0.5 percent to 2,174.85 at 4 p.m. in New York, putting its five-day advance at 0.6 percent. The rise capped the longest run of weekly gains since March. The index’s valuations rose above 20 last week for the first time since 2009.

The CBOE Volatility Index fell 5.9 percent to 11.99, for a fourth weekly decline. The conclusion of the Republican National Convention brought no increase in expected volatility, based on futures contracts on the VIX.

Optimism over better-than-forecast results from companies including American Airlines and Stanley Black & Decker Inc. was countered by disappointment that followed reports from General Electric Co., Honeywell International Inc. and Apple Inc. supplier Skyworks Solutions Inc.. Verizon added 1.3 percent as it’s said to be near a deal to buy Yahoo for close to $5 billion.

The Stoxx Europe 600 Index fell 0.1 percent, trimming a second weekly gain to 0.6 percent. While the gauge reached a four-week high on Wednesday, it’s alternated between daily gains and losses for most of the last week amid mixed corporate earnings and low trading volume.

Currencies

The Bloomberg Dollar Spot Index added 0.3 percent, extending a third weekly gain to 0.8 percent. The gauge reached its highest since May 31 on Wednesday, as data in the U.S. suggested the economy was gaining traction, which revived speculation that Fed will raise interest rates by the end of the year. The yen fell 0.3 percent to 106.17 per dollar and the euro dropped 0.1 percent to $1.0973.

The pound fell 1 percent to $1.3103, wiping out its weekly gain. In the weeks following Brexit, there was a “dramatic deterioration” in the U.K. economy, Markit Economics said in a one-time report published Friday. Services and manufacturing shrank and a gauge of the private-sector economy plunged.

The yuan strengthened 0.1 percent, headed for its first weekly gain in seven weeks, amid speculation the central bank was seeking to limit losses. Chinese Premier Li Keqiang said Friday the nation’s economy is growing steadily and the exchange rate will be kept stable at a reasonable level.

Commodities

The Bloomberg Commodity Index fell for a sixth day, its longest losing streak in three months, on signs of weakening fundamentals and reduced odds for stimulus. The measure of raw materials is down 2.8 percent this week.

Oil dropped to the lowest close in more than two months as the U.S. heads to the end of the summer-driving season with ample crude and fuel stockpiles. West Texas Intermediate for September delivery fell 1.3 percent to settle at $44.19 a barrel in New York. Prices fell 3.8 percent this week.

Gold had its first back-to-back weekly decline since May as gains in equity markets and the dollar sapped demand for the metal as a store of value. Futures fell 0.6 percent to $1,322.70 an ounce.

Nickel retreated from an 11-month high on the London Metal Exchange, where the start of trading was delayed by a technical problem. Gold fell 0.5 percent, set for a second weekly loss, the longest run since May.

Bonds

Treasuries erased losses Friday, leaving the 10-year note yield little changed for the week, a win for bond bulls who speculated the biggest selloff in a year wouldn’t last amid upbeat U.S. economic data. The 10-year rate added one basis point in the week to 1.56 percent, up from an all-time low of 1.32 percent on July 7.

Though still near all-time lows, yields on 10-year Treasuries eclipse those on similar-maturity obligations of 17 other developed-market economies tracked by Bloomberg. Japanese 10-year debt yielded negative 0.24 percent Friday, while German notes yielded about zero.

SOURCE: Bloomberg