U.S. stocks rallied to the highest level since May, commodities gained and Treasuries declined as American payrolls climbed more than forecast. Italian and Spanish notes jumped as German coalition politicians signaled support of the European Central Bank’s bond-buying plan.
The Standard & Poor’s 500 Index increased 1.9 percent to 1,390.99 at 4 p.m. in New York. The Stoxx Europe 600 Index jumped 2.4 percent. Ten-year Treasury yields added nine basis points to 1.57 percent, while Italian two-year debt sank 61 basis points to 3.13 percent. S&P’s GSCI Commodity Index advanced 2.8 percent, its biggest gain in a month. The dollar weakened against most major counterparts and a gauge of U.S. corporate debt fell the most in a week.
U.S. payrolls climbed in July, boosted by a pickup in employment at automakers, even as the jobless rate unexpectedly rose to a five-month high, Labor Department figures showed. Italian and Spanish two-year notes jumped as members of German Chancellor Angela Merkel’s coalition parties signaled they won’t stand in the way of ECB chief Mario Draghi’s plan to buy government bonds.
“We haven’t seen an upside surprise in a while and that’s what the market is reacting to,” said Michael Mullaney, who helps manage $9.5 billion as chief investment officer at Fiduciary Trust in Boston. “It’s still not strong enough to make a real dent in the overall growth of the economy and it’s not weak enough to get the Fed acting.”
Payrolls increased 163,000 following a revised 64,000 rise in June that was less than initially reported, according to the Labor Department. The median estimate of 89 economists surveyed by Bloomberg News called for a gain of 100,000. Unemployment rose to 8.3 percent.
The S&P 500 fell 1.5 in the previous four days as Draghi and Fed Chairman Ben S. Bernanke failed to reassure investors on immediate efforts to bolster the economy. The index has rallied 8.8 percent since its June 1 low amid bets on global central bank action.
Bank of America Corp., Alcoa Inc. and Caterpillar Inc. increased more than 2.2 percent today to pace gains among the biggest companies. Knight Capital Group Inc. surged 57 percent, after tumbling 75 percent in two days, as it is said to have told brokers it got financing to fund market making. LinkedIn Corp., the biggest professional-networking website, surged 16 percent after forecasting sales that beat analyst estimates.
Kraft Foods Inc. and Procter & Gamble Co. advanced more than 3.3 percent on better-than-estimated quarterly earnings. About 73 percent of S&P 500 companies which reported quarterly results have beaten estimates, according to data compiled by Bloomberg. Sales missed estimates at 59 percent of companies.
More than 28 shares advanced for each that declined in Europe’s Stoxx 600. Allianz SE, Europe’s biggest insurer, added 5.7 percent after second-quarter net income rose 23 percent. Axa SA, the second-largest insurance company, gained 5.1 percent on a smaller-than-estimated drop in profit.
Members of Merkel’s coalition parties signaled acceptance of Draghi’s bond buying proposal. The envisaged move to purchase troubled euro states’ government bonds is “a wise middle way” to solve the region’s debt crisis, Elmar Brok, a European Parliament lawmaker and executive-committee member of Merkel’s Christian Democratic Union party, told Deutschlandfunk radio today.
Norbert Barthle, CDU budget spokesman, said German lawmakers will have veto rights over bond purchases by the euro-area’s rescue funds, which would operate in tandem with the ECB under Draghi’s proposal. The temporary fund “was created for a purpose and bond-buying is in the manual,” Barthle said yesterday by phone.
The ECB is edging toward a bond-buying program that investors say could end up printing money, echoing efforts by the Fed and other central banks to fix a credit crisis nearing its sixth year.
Draghi yesterday left open the question on whether the bank would neutralize future bond purchases, a step it has taken with all of its interventions to date. He also said the size of the new program would be “adequate to reach its objective” of curbing Italian and Spanish borrowing costs, a contrast with the “limited” scope of the previous approach.
The yield on Spain’s two-year note dropped 87 basis points to 3.96 percent. The 10-year yield fell 32 basis points to 6.85 percent, below the 7 percent level that presaged bailouts of Greece, Ireland and Portugal.
“The major positive takeaway was that the ECB will be allowed in the longer-term to purchase short-dated sovereign bonds, that is positive for them,” said Michael Markovic, a fixed-income strategist at Credit Suisse Group AG in Zurich.
Treasuries fell the most in a week as the jobs report decreased speculation the Fed will resort to a third round of asset purchases. The central bank said Aug. 1 after a policy meeting it “will provide additional accommodation as needed” to spur growth and employment, a tactic known as quantitative easing, or QE, while it refrained from expanding monetary stimulation this month.
Fed Bank of Richmond President Jeffrey Lacker said today he opposed the Fed’s decision to keep the main interest rate near zero through at least late 2014 because such accommodation probably won’t be necessary.
“Exceptionally low federal funds rates are not likely to be warranted for this length of time,” Lacker said in a statement. “The Committee’s statement implies more confidence about the persistence of low interest rates than I believe is justified by the current outlook.”
The 30-year bond yield rose 10 basis points to 2.65 percent after touching an all-time low of 2.4405 percent on July 26.
The dollar dropped 1.6 percent to $1.2379 per euro, as the euro erased a weekly loss. The U.S. currency appreciated 0.4 percent to 78.57 yen. Canada’s currency rose to parity with the greenback for the first time since May.
The Markit CDX North America Investment Grade Index, a credit-default swaps benchmark used to hedge against losses on corporate debt or to speculate on creditworthiness, decreased 5.4 basis points to a mid-price of 103.7 basis points, according to prices compiled by Bloomberg.
Crude climbed 4.9 percent, the most in a month, to $91.40 a barrel in New York. Copper futures for September delivery rose 2.3 percent to $3.37 a pound. Gold jumped the most in more than a week, increasing 1 percent.
Wheat and corn gained for the first time in four days as the worst Indian monsoon in three years may curb global grain production that’s already been hurt by dry weather in the U.S., Russia and Australia. Wheat jumped 3 percent while corn advanced 1.5 percent.
The MSCI Emerging Markets Index added 0.8 percent, reversing earlier declines of as much as 0.7 percent. The Kospi index fell 1.1 percent as Samsung Electronics Co., South Korea’s biggest exporter of consumer electronics, lost 1.6 percent. The Shanghai Composite Index rose 1 percent, the most in five weeks, following a cut in transaction fees on share trading. Russia’s Micex Index added 1.7 percent. Benchmark gauges in Turkey, Poland and the Czech Republic rose at least 1.1 percent.