U.S. Stocks Rise With Treasuries as Emerging Markets Gain

Photographer: Simon Dawson/Bloomberg

Bank of England Governor Mark Carney said increases in interest rates will be gradual as he seeks to balance a strengthening economy with below-target inflation Close

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Photographer: Simon Dawson/Bloomberg

Bank of England Governor Mark Carney said increases in interest rates will be gradual as he seeks to balance a strengthening economy with below-target inflation

U.S. stocks rose with Treasuries as a slowdown in retail sales spurred speculation the Federal Reserve won’t be in a hurry to raise interest rates. Emerging markets rallied on bets China will take steps to support growth.

The Standard & Poor’s 500 Index rose 0.7 percent to the highest level in two weeks at 4 p.m. in New York, recovering from yesterday’s 0.2 percent decline. Yields on 10-year Treasuries fell 4 basis points to 2.42 percent after the sale of $24 billion in notes. The MSCI Emerging Markets Index climbed 0.5 percent, rallying for a third day. Copper slumped 1.3 percent and zinc declined 2.1 percent. The U.K. pound slid after the Bank of England cut its forecast for wage growth.

U.S. retail sales were little changed in July, the worst performance in six months, as car demand slowed and tepid wage growth restrained U.S. consumers. Chinese industrial output expanded 9 percent in July, less than the 9.2 percent estimate from economists in a Bloomberg survey. Bank of England Governor Mark Carney said increases in interest rates will be gradual as he seeks to balance a strengthening economy with below-target inflation.

“There is some feeling that events overseas are beginning to cool down a little bit, but also the retail numbers might suggest that the Fed is not going to be so aggressive in raising rates any time soon,” Bruce Bittles, chief investment strategist at Milwaukee-based RW Baird & Co., which oversees $110 billion, said in a phone interview. “That has been the backbone of the market for the past five years.”

Retail Sales

The slowdown in U.S. July retail sales followed a 0.2 percent advance in June. The median forecast of 82 economists surveyed by Bloomberg called for a 0.2 percent gain. Excluding cars, sales rose 0.1 percent.

Investors have been scrutinizing data to gauge the health of the world’s largest economy and for clues on the timing of Fed stimulus cuts. Recent reports have shown U.S. gross domestic product expanded at a 4 percent annual pace in the second quarter, confirming the Fed’s view that a first-quarter contraction was transitory.

The economic strength has created concern that the Fed may be forced to act on rates sooner than anticipated, as the central bank remains on pace to wind down its monthly bond purchases in October. Fed Chair Janet Yellen has said officials will keep its benchmark low for a “considerable time” after the bond buying ends.

Three-rounds of bond purchases and record-low interest rates have helped push stocks higher by as much as 194 percent from a bear-market low in 2009.

Global Economy

The S&P 500 last closed at a record on July 24 before tumbling 3.9 percent on concerns that geopolitical crises from Ukraine to Israel and Iraq could derail the global economy. The gauge closed yesterday 2.7 percent below its all-time high.

“The retail sales numbers may be below expectations, but the market isn’t reacting too much because this doesn’t change the overall story,” John Fox, director of research at Fenimore Asset Management in Cobleskill, New York, said in a phone interview. “Data can be flattish from month to month, but the environment for equities is good, rates are low, the earnings season was terrific, and that’s positive for the market.”

Cisco Systems Inc., Deere & Co., Macy’s Inc. and NetApp Inc. are reporting earnings today. About 75 percent of S&P 500 companies that have posted results this season have beaten analysts’ estimates for profit, according to data compiled by Bloomberg.

Amazon.com Inc. climbed 2.2 percent after ChannelAdvisor Corp. said the retailer’s same-store sales rose 40 percent in July. FleetCor Technologies Inc. rose 9.8 percent after it agreed to acquire Comdata Inc. for $3.45 billion. Macy’s lost 5.5 percent after profit fell short of estimates.

Treasury Auction

The Treasury’s sale of $24 billion in 10-year notes drew the lowest yield in more than a year. The notes yielded 2.439 percent, compared with a forecast of 2.435 percent in a Bloomberg News survey of six of the Fed’s 22 primary dealers. The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 2.83, versus an average of 2.69 at the past 10 sales.

Investors continued to watch global political crisis. In Iraq, Kurdish forces fought to retake positions overrun last week by Islamic State fighters in the northern part of the country, while a political standoff between President Fouad Masoum and Prime Minister Nouri al-Maliki continued.

Ukrainian officials said today they’d refuse entry to a truck convoy that Russia says is loaded with humanitarian assistance for rebel-held eastern areas, while pledging to send their own aid to the embattled region.

Geopolitical Issues

“The many geopolitical issues are a little quieter or on the back burner at the moment,” Richard Sichel, chief investment officer at Philadelphia Trust Co., which oversees $2 billion, said in a phone interview. “It’s given investors an opportunity to take a look and see if they want to add to positions, and it looks like that’s what they’re doing today.”

The yen declined 0.2 percent to 102.43 per dollar amid reduced demand for haven assets. The ruble rose 0.4 percent to 36.04 per dollar.

The Stoxx Europe 600 Index advanced 0.4 percent. The benchmark has still fallen 5.6 percent from a six-year high on June 10 as U.S. President Barack Obama authorized air strikes against militants in Iraq and concern grew over fighting in Ukraine and Israel.

European Shares

German utility E.ON SE (EOAN) climbed 4.8 percent after it posted first-half profit that exceeded analysts’ estimates. Swiss Life Holding AG advanced 7.1 percent after Switzerland’s biggest life insurer said it will buy German real estate asset manager Corpus Sireo. It also reported an increase in first-half earnings. Meda AB lost 8.6 percent after the Swedish drugmaker posted earnings that missed analysts’ projections.

Industrial output in the 18-nation euro area fell 0.3 in June from a month earlier. Eurostat’s measure of production dropped 1.1 percent in May, its biggest decline since September 2012.

The pound weakened 0.7 percent to 80.07 pence per euro, while yields on 10-year gilts fell 4 basis points to 2.44 percent. While Carney said in a June speech at Mansion House that the BOE may raise its key interest rate from a record earlier than investors expected, he has since softened that stance.

Emerging Markets

Emerging-market stocks rose for a third day amid bets China and South Korea will take steps to support economic growth. The developing-nation gauge has risen 6.7 percent this year and trades at 12 times projected 12-month earnings, data compiled by Bloomberg show. The MSCI World Index, which added 0.5 percent today, has gained 3.3 percent in the period, and is valued at a multiple of 15.2.

The Shanghai Composite Index erased losses as investors weighed prospects for stimulus after disappointing economic data and the Kospi jumped 1 percent in Seoul. The Hang Seng China Enterprises Index climbed 1.2 percent in Hong Kong.

New-lending, retail-sales, home-sales and industrial-production data signaled the world’s second-largest economy is slowing, with Premier Li Keqiang’s growth target of about 7.5 percent this year at risk.

Copper fell the most in 10 weeks, while zinc and aluminum slid more than 1.2 percent. China is the biggest buyer of industrial metals.

Brazilian stocks and the real were whipsawed higher and lower after opposition presidential candidate Eduardo Campos died in a plane crash. With just over seven weeks to go before the Oct. 5 election, Campos was running third in polls.

The Ibovespa fell as much as 2.1 percent initially, then recovered, only to sink 1.7 percent as investors assessed the impact on the election. The real lost 0.3 percent against the dollar after also fluctuating.

Oil futures erased a loss of as much as 0.6 percent on speculation prices fell more than justified after an unexpected increase in U.S. crude inventories.

To contact the reporters on this story: Elena Popina in New York at epopina@bloomberg.net; Shelley Smith in London at ssmith118@bloomberg.net

To contact the editors responsible for this story: Justin Carrigan at jcarrigan@bloomberg.net; Lynn Thomasson at lthomasson@bloomberg.net Jeff Sutherland

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