Global Stocks Rally on Fed as Treasuries Slide With Oil – Businessweek

Posted: Thursday, December 18, 2014

Global stocks surged, with the Standard & Poor’s 500 Index posting its biggest two-day climb in more than three years, as the Federal Reserve pledging patience on interest rates bolstered sentiment amid concern over the global outlook. Treasuries sank and crude oil resumed its selloff.

The S&P 500 (SPX) jumped 2.4 percent by 4 p.m. in New York, capping a two-day gain of 4.5 percent, the most since November 2011. A Bloomberg gauge of the dollar versus major peers touched a more-than five year high as 10-year Treasuries suffered their biggest drop in 17 months. West Texas Intermediate oil sank 4.2 percent. The Stoxx Europe 600 Index soared the most since 2011, Dubai stocks rose the most on record and Russia’s Micex index advanced. The MSCI All-Country World Index of global shares climbed 2 percent to cap its best two days since September 2012.

Fed Chair Janet Yellen said policy makers are likely to hold rates near zero at least through the first quarter even as the U.S. economy strengthens. The clarification of policy plans boosted stocks and emerging-market nations’ currencies that may lose investment should rates rise in developed countries. WTI oil slid to a five-year low amid ongoing concern over a global supply glut, while Russian President Vladimir Putin struck an uncompromising stance over Russia’s financial crisis.

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“Just as with other instances, a dovish Fed is making up for a lot of bad news, from Europe from other parts of the world,” Russ Koesterich, chief investment strategist at New York-based BlackRock Inc., said in an interview on Bloomberg TV. “This is why you have this rebound rally after a few days of very harsh losses.”

Equities Rebound

U.S. stocks are rebounding from losses over seven days that erased $1 trillion from equity prices and coincided with a 15 percent drop in benchmark crude between Dec. 5 and Dec. 16. S&P 500 energy producers tumbled 8 percent over the stretch. The broader gauge closed at 2,061.23 today, 0.7 percent below a record. WTI fell to $54.11 a barrel in New York today, the lowest settlement since May 2009, while Brent slid 3.1 percent.

Oil Prices

Should it continue, the recovery would mark the fifth time this year that the S&P 500 has come back after falling more than 4 percent from a high. In comparable drops beginning in January, April, July and September, the index needed about a month to erase losses, data compiled by Bloomberg show.

The difference between two- and 30-year yields widened for the first time in six days as longer-maturity Treasuries led declines. Ten-year yields rose by seven basis points, or 0.07 percentage point, to 2.21 percent, with rates increasing as much as 17 basis points in the past two days, the most since July 2013.

Rate Outlook

The increase in Treasury yields “indicates the market believes the Fed is going to move sooner than they previously believed and the stock market is taking off,” Jim McDonald, chief investment strategist at Chicago-based Northern Trust Corp., said by phone. His firm manages more than $920 billion of assets. “That’s evidence that equity investors view higher interest rates as proof that the economy is healthier and that’s a good thing for stocks.”

Oracle Corp. surged 10 percent, the most since 2008, after the company’s profit and sales surpassed analysts’ estimates. That move boosted technology shares in the S&P 500 to a 3 percent gain. The Nasdaq 100 Index jumped 2.5 percent.

Energy shares in the S&P 500 added 2.1 percent after yesterday jumping 4.2 percent, the biggest one-day gain since 2011. The group had fallen as much as 27 percent from a June high. The Dow Jones Industrial Average added 2.4 percent, its steepest one-day advance since December 2011.

The Fed meeting this week took place after a series of government reports showing that the U.S. economy is on a stronger footing. Payrolls rose by 321,000 last month, the biggest increase in almost three years, while retail sales increased 0.7 percent, the most in eight months.

Jobless Claims

Jobless claims decreased by 6,000 to 289,000 in the week ended Dec. 13, the fewest since early November, a Labor Department report showed today in Washington. The Conference Board’s leading indicators index, a gauge of the outlook for the next three to six months, increased 0.6 percent in November.

“I wouldn’t say we’re seeing wild raging bulls, but a lot of the worry they had is gone,” Joe “JJ” Kinahan, chief strategist at TD Ameritrade Holding Corp., said in a phone interview. The firm manages about $653 billion in client assets. “For now and for the rest of the year, we’re in a good spot.”

The Stoxx Europe 600 Index soared 3 percent as all 19 industry groups rose.

Total SA climbed 2.4 percent and Statoil ASA added 5.5 percent. Switzerland’s Novartis AG and Roche Holding AG contributed the most to the Stoxx 600 advance today and the Swiss Market Index gained 3.5 percent.

Swiss Franc

Switzerland’s franc weakened the most in about 18 months versus the euro as the nation imposed its first negative deposit rate since the 1970s and threatened further action to stem the tide of money flowing from Russia’s financial crisis. The franc depreciated 0.2 percent to 1.20369 per euro after earlier dropping as much as 0.7 percent to 1.20974, the weakest intraday level since Oct. 10.

The dollar was little changed at 118.81 yen after surging 1.9 percent yesterday, the biggest one-day advance since Oct. 31. The U.S. currency appreciated 0.5 percent to $1.2285 per euro and touched $1.2266, the strongest level since Dec. 8. The yen strengthened 0.3 percent to 146 per euro.

The MSCI Emerging Markets Index advanced 1.8 percent as a sub-index of energy shares rose 2.9 percent after falling to a five-year low Dec. 16. The Dubai Financial Market General Index jumped 13 percent, while equities in Saudi Arabia and Abu Dhabi rallied the most in at least five years. Brazil’s Ibovespa fell 0.5 percent.

Ruble Moves

The ruble weakened 2.1 percent versus the dollar, after climbing 11 percent yesterday, as Putin told reporters in a press conference that the nation’s central bank shouldn’t waste foreign reserves to help protect the currency. Russia’s Micex index added 4.5 percent after Putin said the economy will rebound from the currency crisis in two years.

The MSCI Asia Pacific Index rose 0.7 percent after closing at the lowest level since March yesterday. Japan’s Topix index rebounded 1.8 percent from its lowest level since Oct. 31.

Sony Corp. climbed 4.8 percent in Japan after its movie production unit, Sony Pictures, canceled plans to release “The Interview” on Dec. 25 amid pressure from cyberterrorists who broke into the company’s computers and threatened violence against filmgoers. The movie is about a plot to assassinate North Korean leader Kim Jong Un. The Hang Seng Index added 1.1 percent today.

BYD Co., the Chinese carmaker partially owned by Warren Buffett, plunged as much as 47 percent in Hong Kong, a record retreat, before closing 29 percent lower. The company said its operations and production are normal.

The Shanghai Composite Index fell 0.1 percent after reaching a four-year closing high yesterday. Demand for stocks and the biggest new share sales of the year drove China’s benchmark money-market rate to the highest level in almost nine months.

To contact the reporters on this story: Jeremy Herron in New York at jherron8@bloomberg.net; Callie Bost in New York at cbost2@bloomberg.net

To contact the editors responsible for this story: Jeff Sutherland at jsutherlan13@bloomberg.net Jeremy Herron, Emma O’Brien

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