U.S. equities rose and Asian stock futures signaled a rebound after yesterday’s rout as better-than-forecast U.S. economic data and speculation the Federal Reserve will look to maintain record-low interest rates bolstered markets. The yen pared this week’s gains.
The Standard & Poor’s 500 Index (SPX) posted its second-biggest advance of the year, climbing 1.5 percent to 1,636.36 in New York after losing 1.9 percent in the previous three sessions, the biggest drop in almost two months. The MSCI All-Country World Index, the benchmark gauge of global stocks, rebounded from the lowest level since April to add 0.5 percent. Futures on Japan’s Nikkei 225, which tumbled the most in three weeks yesterday, jumped 3.8 percent, while contracts on Hong Kong’s Hang Seng Index rose 1.1 percent. The yen weakened 0.1 percent versus the dollar, cutting the week’s climb to 2.2 percent.
U.S. shares reversed the global slide after reports showed retail sales rose the most in three months in May and fewer Americans than forecast filed for unemployment benefits last week. Stocks and Treasuries extended gains as the Wall Street Journal reported that the Fed may “push back” on market expectations for higher borrowing costs. Global stocks have plunged more than 3 percent from this year’s May 21 peak on speculation the Fed may ease its stimulus.
“The economy around the globe is slowing down so U.S. investors are certainly watching the data and hopefully see signs that the U.S. is not joining their friends in Europe and emerging markets,” Wayne Wilbanks, chief investment officer at Wilbanks, Smith & Thomas Asset Management LLC in Norfolk, Virginia, which oversees $2.5 billion, said in a phone interview. “Just the mention of Fed tapering has caused all sorts of problems in the bond markets and beginning to cause some problems in the equity markets because people realized if it were not for the government, we’d have 5.5 percent 10-year yield.”
Ten-year Treasury yields slipped eight basis points, or 0.08 percentage point, to 2.14 percent, the most in two months. The S&P GSCI index of commodities gained 0.4 percent yesterday, while crude was little changed today at $96.66 a barrel. The yen, up 3.6 percent over the previous three days, weakened to 95.46 per dollar and fell less than 0.1 percent to 127.61 per euro, after gaining 0.4 percent yesterday.
More than $2.5 trillion has been erased from the value of global equities since Fed Chairman Ben S. Bernanke said May 22 that policy makers could scale back stimulus efforts should the job market show “sustainable improvement.” The Bank of Japan, scheduled to release minutes of its May meeting today, left its plans for the annual increase in the monetary base unchanged June 11 and refrained from extending the maturity of loans to banks, adding to speculation support will be pared back.
The Australian dollar was little changed in early trading at 96.36 U.S. cents, and the New Zealand currency was steady at 81.06 cents. The kiwi is poised for a 2.7 percent gain in the week, the most since December 2011 and the best performance over the past five days among 16 major currencies tracked by Bloomberg. Reserve Bank of New Zealand Governor Graeme Wheeler said yesterday that the currency is overvalued.
Retail sales in the U.S. increased 0.6 percent in May, following a 0.1 percent gain in April, Commerce Department figures showed. The median forecast of 83 economists surveyed by Bloomberg called for a 0.4 percent advance. Jobless claims dropped by 12,000 to 334,000 last week, the Labor Department reported, lower than the median economist estimate of 346,000.
Stocks and 10-year Treasuries reached their strongest levels of the session after an analysis piece posted on a Wall Street Journal blog said that Bernanke will probably emphasize that the central bank plans to hold its benchmark lending rate low for a “considerable” amount of time after it begins to taper its quantitative easing program.
The World Bank cut its global economic growth forecast for 2013 to 2.2 percent in a June 12 report, down from a January estimate of 2.4 percent and below last year’s 2.3 percent. The Federal Open Market Committee meets next week. The Nikkei 225 entered a bear market yesterday, falling 20 percent from a five-year high reached May 22.
The Stoxx Europe 600 Index ended down less than 0.1 percent, after earlier sliding as much as 1.7 percent. The Stoxx Europe 600 Index has lost almost 6.5 percent since its May 22 high and has pared its gains so far this year to less than 4 percent. A gauge of volatility in euro-area stocks extended its three-day gain to 13 percent.
The MSCI Emerging Markets Index slipped 1.1 percent to a nine-month low. Brazil’s Ibovespa jumped 2.5 percent, its biggest one-day gain since March. Overseas investors pulled the most money out of the Indian stock market over June 11 and 12 since November 2011, according to data compiled by Bloomberg. The S&P BSE India Index (SENSEX) lost 1.1 percent yesterday.
The yield on 30-year Treasuries fell seven basis points to 3.30 percent in New York. U.S. bonds briefly pared gains after a sale of $13 billion in 30-year securities became the third auction of notes and bonds this week to draw lower-than-average demand.
The Dollar Index, which tracks the currency against six major peers, dropped 0.2 percent in a fourth straight daily decline. The dollar is moving more in tandem with stocks than any time since 2008 in a sign that traders are gaining confidence in the sustainability of the U.S. recovery.
The Dollar Index and the S&P 500 are the most closely correlated since the start of the global financial crisis, according to data compiled by Bloomberg. The gauges started moving more in lockstep last month as the greenback jumped to an almost three-year high and U.S. equities surged to a record.
Currency returns are falling as the strategy of borrowing low-yielding currencies to fund investments in higher-yielding assets collapses. The Currency Managers Index dropped to 162.15 as of May 31, the lowest since December, while the Deutsche Bank G10 FX Carry Basket dropped to the least since October.
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