Commodities Rally Sends Crude Oil Above $101, Helping U.S. Stocks Rebound

Commodities climbed for a second day, and gains in energy and metal producers helped the U.S. equity market snap a three-day slump, amid speculation recent price declines were excessive as demand improves. Five-year Treasuries rose as a $35 billion sale drew the strongest demand since 1994.

The Standard & Poor’s GSCI Index of commodities rallied 1.7 percent at 4:18 p.m. in New York. The S&P 500 increased 0.3 percent to 1,320.47, rebounding from a one-month low. The DAX Index (DAX) of equities reversed losses in Frankfurt as Fitch Ratings said it’s not planning any downgrades of German banks because of Greece’s debt crisis. Five-year Treasury yields slipped two basis point to 1.76 percent. The Dollar Index was little changed after climbing as much as 0.5 percent.

Copper helped lead the advance in commodities after Deutsche Bank AG joined JPMorgan Chase & Co. and Goldman Sachs Group Inc. in predicting prices are likely to rebound. Oil futures recovered from earlier losses to climb above $101 a barrel as U.S. government data showed fuel demand increased. Exxon Mobil Corp. paced gains in all 41 energy stocks in the S&P 500, and 26 of 30 raw-material producers rose.

“Commodities are a canary in a coal mine for the global growth story,” said Stephen Wood, the New York-based chief market strategist for Russell Investments, which manages about $161 billion. “Ultimately, if oil goes too high, it may have high significant inflationary and growth pressures. For the short-term, it’s the growth and demand story that investors are reacting to. The economy will be fine and I’m still expecting a good earnings environment.”

Broad Commodity Rally

Silver, sugar and cocoa climbed at least 2.7 percent to lead an advance in all 24 commodities tracked by the S&P GSCI. The gauge had retreated as much as 11.5 percent since April 8, the day it rallied to the highest level since August 2008. Producers of energy and raw materials have led the S&P 500’s 3.2 percent slump from an almost three-year high on April 29.

Copper jumped 2.3 percent to $4.107 a pound in New York today. The metal will average $11,500 a metric ton in 2012, Deutsche Bank said in a report today. That compares with about $9,483 so far this year on the London Metal Exchange, data compiled by Bloomberg shows, implying a 21 percent advance. Goldman Sachs yesterday suggested buying copper and zinc, reversing last month’s call to sell commodities.

Oil for July delivery advanced 1.7 percent to $101.32 a barrel after slipping 1.4 percent earlier. U.S. data showed that inventories of distillate fuel, a category that includes diesel and heating oil, tumbled by 2.04 million barrels to a more than two-year low of 141.1 million as consumption increased.

Early Losses Reversed

The S&P 500 erased an early 0.3 percent slide that was triggered by a bigger-than-forecast 3.6 percent drop in durable- goods orders and earnings that missed estimates at companies form Costco Wholesale Corp. to Polo Ralph Lauren Corp. Costco, the largest U.S. warehouse club, lost 1.3 percent. Polo Ralph Lauren, retailer of its namesake brand clothing, slid 11 percent for its worst drop since October 2008.

American International Group Inc. declined 4 percent after the insurer and the government sold shares in the company. The U.S. Treasury sold 200 million shares at $29 each, compared with yesterday’s closing price of $29.46. The government, which retains a majority stake, needs to sell shares at an average of about $28.73 to recover a $47.5 billion investment. AIG disposed of 100 million shares, raising $2.9 billion, according to a statement from the company.

‘Remarkable Turnaround’

“When the government intervened, it only did this in the first place to prevent a collapse of our financial system and most people thought all of the money we spent on preventing the collapse of AIG would never be seen again,” said Timothy Massad, the acting assistant U.S. Treasury secretary for financial stability, in an interview on Bloomberg Television. “The fact that two-and-a-half years later we’ve already recovered a lot of it, and we’re on the path to recovering more, is really a remarkable turnaround.”

The dollar weakened versus eight of 16 major currencies, depreciating the most versus the Swiss franc and British pound. The franc appreciated versus all 16 peers and reached a record versus the euro.

The 10-year Treasury note yield swung between gains and losses after the five-year securities sold today drew a yield of 1.813 percent, compared with the average forecast of 1.830 percent in a survey of eight of the 20 primary dealers obliged to participate in U.S. debt offerings. The bid-to-cover ratio, a gauge of demand, was 3.20, compared with 2.77 last month and an average of 2.82 at the past 10 sales.

The Markit CDX North America Investment Grade Index , which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, decreased 0.4 basis point to a mid-price of 91 basis points.

European Stocks

The Stoxx Europe 600 Index rallied 0.7 percent for its biggest gain in two weeks. EON AG and RWE AG, Germany’s biggest utilities, rose at least 1.9 percent as the Financial Times Deutschland reported the government may scrap a tax on nuclear reactors.

The DAX, Germany’s benchmark index, climbed 0.3 percent after retreating as much as 1.1 percent. Commerzbank AG rallied 6.1 percent as all German lenders were said to be likely to pass the second round of European Union stress tests, said three people familiar with matter who declined to be identified because the information isn’t public.

Fitch said today that German banks’ potential losses from Greece are manageable and it does not envision any downgrades of the nation’s lenders. Fitch said it sees large potential contagion risks if there were any restructuring of Greek government debt. Most German banks have only limited risks from Portugal and Ireland, Fitch added.

Viet Nam, China Retreat

The MSCI Emerging Markets Index dropped 0.6 percent. Vietnam’s VN Index tumbled 4 percent, falling for a 10th day to the lowest in more than two years, after government data showed inflation accelerated to a 29-month high in May even as policy makers raised interest rates for the sixth time this year. South Korea’s Kospi Index (KOSPI) slid 1.3 percent, led by chemical and technology companies. The Shanghai Composite Index sank 0.9 percent, extending its retreat from this year’s peak to 10 percent.

Jim Chanos, the hedge-fund manager known for predicting Enron Corp.’s 2001 collapse, says he’d short sell Chinese companies listed in the U.S. if it were feasible to borrow shares to open the bearish positions.

The Bloomberg Chinese Reverse Mergers Index has plunged 41 percent since Nov. 8 amid speculation financial statements from companies such as China MediaExpress Holdings Inc. can’t be trusted. The concern intensified this week after Longtop Financial Technologies Ltd., whose initial public offering was underwritten by Goldman Sachs Group Inc. and Deutsche Bank AG, said its auditor quit because of false records.

“Almost all of them have odd looking financial statements,” Chanos, the president and founder of New York- based Kynikos Associates LP, said on Bloomberg Television yesterday. “We wish we could borrow almost all of them.”

To contact the reporters on this story: Michael P. Regan in New York at mregan12@bloomberg.net; Rita Nazareth in New York at rnazareth@bloomberg.net.

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.