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U.S. Stocks Rise on Budget Optimism as Treasuries Drop

Photographer: Scott Eells/Bloomberg

Traders work on the floor of the New York Stock Exchange. Close

Traders work on the floor of the New York Stock Exchange.

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Photographer: Scott Eells/Bloomberg

Traders work on the floor of the New York Stock Exchange.

U.S. stocks rose, paring a weekly decline in the Standard & Poor’s 500 Index (SPX), as optimism grew that lawmakers would reach a deal to end America’s budget standoff. Treasuries and gold fell while Italian bonds advanced.

The S&P 500 gained 0.7 percent at 4 p.m. in New York, while the Stoxx Europe 600 Index climbed 0.1 percent. The yield on 10-year Treasuries increased four basis points to 2.65 percent. Italy’s 10-year bond yield dropped seven basis points to 4.30 percent. West Texas Intermediate oil added 0.5 percent as Tropical Storm Karen approached the U.S. coast, while gold futures slid 0.6 percent.

A partial U.S. government shutdown entered a fourth day amid wrangling by lawmakers over the budget and debt limit. Bill Gross of Pacific Investment Management Co. and BlackRock Inc.’s Larry Fink said the deadlock will be resolved soon, limiting damage to the economy. House Speaker John Boehner has been telling fellow Republicans that he won’t allow the U.S. to default on its debt, according to two Republican congressional aides.

“There’s a working presumption that this is fundamentally theater and it’s going to work itself out favorably,” Mackintosh Pulsifer, vice chairman and chief investment officer of Fiduciary Trust Co. International in New York, said in a phone interview. He helps oversee $15 billion. “There will not be a default, we’ll find some way to raise the debt ceiling. In a few weeks it’s not going to have any impact.”

Photographer: Alessia Pierdomenico/Bloomberg

Italy’s 10-year bond yield dropped seven basis points to 4.30 percent. Close

Italy’s 10-year bond yield dropped seven basis points to 4.30 percent.

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Photographer: Alessia Pierdomenico/Bloomberg

Italy’s 10-year bond yield dropped seven basis points to 4.30 percent.

Economic Summits

The S&P 500’s rally today trimmed the weekly loss to 0.1 percent. The gauge had slumped as much as 1.3 percent for the week through yesterday. The Dow Jones Industrial Average (INDU) ended the five days with a 1.2 percent drop.

President Barack Obama canceled plans to attend two economic summits in Asia next week as he remains in Washington to seek an end to the government shutdown. The Treasury Department said failure to raise the debt limit has the potential to freeze credit markets and cause the dollar to plunge.

Partially closing the U.S. government for one week would probably shave 0.1 percentage point from economic growth, according to the median of 40 estimates in a Bloomberg survey of economists. Federal Reserve Bank of San Francisco President John Williams estimated yesterday a two-week government halt would trim 0.25 percentage point off fourth-quarter economic growth.

The shutdown delayed the release of the Labor Department’s monthly payrolls report, which was due today. The lack of data is making it harder for Federal Open Market Committee policy makers to assess the health of the economy as they consider when to start paring unprecedented monetary stimulus. Atlanta Fed President Dennis Lockhart said the shortage of economic news “would tend to make me somewhat more cautious” about reducing the pace of bond purchases.

‘Zero Chance’

“The taper is off the table for October, that is a silver lining for the market,” Phil Orlando, New York-based chief equity strategist at Federated Investors, said in a phone interview. His firm manages about $380 billion in assets. “Given the fact that there is no jobs data and given the fact that we have triggered the potential breach of the debt ceiling, in my opinion there is zero chance that the Fed is going to commence the taper at the Oct. 29-30 FOMC meeting.”

The S&P 500 has rallied 19 percent this year. It has surged 150 percent from a March 2009 low amid three rounds of Fed stimulus and better-than-forecast corporate earnings.

Visa Inc. rose 1 percent today after a judge ruled the company didn’t infringe a SmartMetric Inc. patent. Facebook Inc. climbed 3.8 percent after the operator of the world’s most popular social network said it will sell advertising on its Instagram photo service. Union Pacific Corp. declined 1 percent after its earnings forecast missed projections.

Twitter Inc. released its S-1 prospectus for an initial public offering yesterday, with the document suggesting a valuation of $12.8 billion for the microblogging website.

Europe Stocks

Today’s gain for the Stoxx 600 trimmed its retreat for the week to 0.7 percent. Lindt & Spruengli AG jumped 3.6 percent to its highest since 2008 after saying it will buy back shares worth about 450 million Swiss francs ($498 million). Nokian Renkaat Oyj sank 7.6 percent, the most in almost a year, as the Finnish tiremaker cut its earnings forecasts.

The MSCI Emerging Markets Index added 0.3 percent, gaining for the fourth straight day. The gauge climbed 0.8 percent this week. Malaysia’s ringgit strengthened 0.4 percent after a report showed the trade surplus rose more than analysts estimated as exports jumped.

Treasuries snapped a two-day advance as the U.S. prepared to auction $64 billion of notes and bonds next week.

Treasury Rates

Money managers are getting out of Treasuries maturing closest to the debt-ceiling deadline on Oct. 17 and buying longer-maturity bills, yields indicate. One-month rates climbed as high as 0.16 percent yesterday, while rates on three-month bills were 0.02 percent, the biggest inversion of the spread since September 2008.

Corporate bond issuance slid 53 percent this week in Europe to the least in seven weeks, while U.S. sales tumbled 81 percent.

Unibail-Rodamco SE (UL), Europe’s largest publicly traded property owner, and Banco Popular Espanol SA were among companies issuing 8.3 billion euros of notes this week, the least since the period ended Aug. 17, data compiled by Bloomberg show. Dollar-denominated offerings fell to $10.9 billion, the least since the period ended Aug. 30.

Italian Politics

Italy’s 10-year securities climbed for the third time in four days as Prime Minister Enrico Letta won a confidence vote in parliament. Silvio Berlusconi’s future in Italian politics is hanging in the balance after a Senate panel voted today to recommend expelling the former prime minister from the upper house, following an August tax-fraud conviction.

Spain’s yield dropped four basis points to 4.20 percent today and Portugal’s declined 21 basis points to 6.34 percent, the lowest since Aug. 20.

Australia’s dollar rose 0.4 percent to 94.34 U.S. cents as traders bets reflected increased expectations the central bank won’t cut borrowing costs this year. The pound dropped against 15 of 16 of its major counterparts, falling 0.9 percent to $1.6014.

Gold fell for the fourth time this week in New York, sliding 0.6 percent, amid speculation that the impact of the federal shutdown will be limited. Holdings in global exchange-traded products yesterday reached the lowest since May 2010, wiping about $60.6 billion from the value of the assets this year. Bullion prices dropped 22 percent in 2013 as some investors lost faith in the metal as a store of value.

‘Chasing Equities’

“Money seems to be chasing equities,” Phil Streible, a senior commodity broker at R.J. O’Brien & Associates in Chicago, said in a telephone interview. “Gold does not seem to be attracting the safe-haven premium.”

Copper futures rose for the second time in three days, gaining 1 percent. Inventories tracked by the London Metal Exchange slid for a 22nd day, to 525,925 metric tons, the lowest since March 15.

West Texas Intermediate increased 0.5 percent to $103.84. Tropical Storm Karen pushed through the Gulf of Mexico to the U.S. coast, threatening crude production in the region. Karen will make landfall early Oct. 6 on the southeastern tip of Louisiana, according to the National Hurricane Center.

Robusta coffee rallied as much as 3.1 percent after stockpiles in warehouses monitored by NYSE Liffe declined 19 percent in the past two weeks.

To contact the reporters on this story: Aubrey Pringle in New York at apringle1@bloomberg.net; Alex Barinka in New York at abarinka2@bloomberg.net

To contact the editor responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net

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