Stocks rallied with commodities as U.S. jobless claims reached a five-year low, easing concern about the economy. The euro tumbled and the region’s bonds climbed as European Central Bank President Mario Draghi said policy makers have an open mind about a negative deposit rate.
The Standard & Poor’s 500 Index added 0.9 percent to 1,597.59, erasing yesterday’s decline and returning to a record, as of 4 p.m. in New York. The euro lost 0.9 percent to $1.3060 while two-year German note yields fell below zero and rates on 10-year French and Belgium debt slid to records. Oil surged the most in six months to help lead commodities higher, while natural gas sank 7 percent on bigger-than-forecast growth in inventories. Ten-year Treasury yields were little changed at less than 1.63 percent, the lowest level of the year.
The unexpected drop in American jobless claims eased concern about the labor market before a government report tomorrow that is forecast to show the unemployment rate held at 7.6 percent. The ECB cut its benchmark interest rate to a record low and Draghi signaled another reduction is possible, a day after the Federal Reserve maintained its bond-buying plan and said it may make changes to the size of purchases if needed.
“Central banks around the world are saying, ‘take risk, take risk’ and investors have responded by taking risk,” Sandy Lincoln, the Chicago-based chief market strategist in the U.S. with BMO Global Asset Management, which oversees about $120 billion, said in a telephone interview. “You’re obviously seeing companies not making significant cuts to the employment level. You see productivity gains are very narrow and very marginal at best, which suggests companies are sitting right at a decision apex. And the decision apex is ‘do we start to hire? Do we have enough evidence to go there?’”
The S&P 500 rebounded following the biggest decline in two weeks yesterday, triggered when reports showed weaker growth in global manufacturing and private U.S. payrolls. Facebook Inc. advanced 5.6 percent as the operator of the world’s largest social network reported first-quarter sales that topped projections. General Motors Co. rose 3.2 percent as it narrowed its first-quarter loss in Europe. MetLife Inc. and Prudential Financial Inc. climbed 4.1 percent and 7 percent respectively after the insurers’ earnings beat forecasts.
Applications for U.S. unemployment insurance payments fell 18,000 to 324,000 in the week ended April 27, the fewest since January 2008, Labor Department figures showed. Economists forecast 345,000 claims, according to the median estimate in a Bloomberg survey. A Labor Department official said there was nothing unusual in the data.
A report tomorrow is projected to show U.S. unemployment stayed at 7.6 percent in April, while payrolls rose by 140,000, compared with an increase of 88,000 the prior month, according to the median estimates of economists in a Bloomberg survey.
The S&P 500 has rallied 136 percent from its bear-market low in 2009 amid the Fed’s efforts to bolster the economy and three straight years of profit growth.
Historical relationships between U.S. equity and options prices have come under increasing strain in the past week, with the record rally in the S&P 500 awakening demand among both speculators and hedgers.
The Chicago Board Options Exchange Volatility Index moved in the same direction as the S&P 500 for four straight days through April 29, including three advances and one drop. That’s the longest stretch of lockstep moves since February 2007, according to data compiled by Bloomberg. The indexes swing in the opposite direction about 80 percent of the time. The VIX dropped 6.2 percent to 13.59 today.
“VIX levels can be driven by greed as much as by fear,” said Gene Lynch, an equity derivatives trader at Access Securities Inc. in Stamford, Connecticut. “The fear now seems to be driven more by being underinvested, which translates to buying calls and/or stocks with protective index puts.”
The Stoxx Europe 600 Index added 0.3 percent as most of the region’s markets reopened following a holiday. The benchmark index erased an earlier decline as investors weighed the ECB’s actions and companies from Sanofi to Statoil ASA reported profit that fell short of analysts’ estimates.
Royal Dutch Shell Plc advanced 1.4 percent to its highest price in three months in Amsterdam after saying earnings from refining and marketing rose because of higher processing margins. Statoil ASA retreated 3.9 percent, the most in almost a year, after reporting lower oil and gas production in Norway. Danske Bank A/S declined 5.4 percent, the most in six months, after saying that low interest rates have caused net interest income to decline.
The euro weakened against 15 of 16 major peers, losing at least 0.9 percent versus the currencies of South Africa, Mexico and South Korea.
European policy makers cut the main refinancing rate to a record low 0.5 percent from 0.75 percent and reduced the marginal lending rate to 1 percent from 1.5 percent. The euro turned lower as Draghi, speaking in Bratislava, signaled that officials may take the unprecedented step of charging banks to park excess cash with the ECB overnight.
“Most importantly he seemed more open to a cut in the deposit rate and it is this that drove the euro lower after trading choppily initially,” Marc Chandler, chief currency strategist at Brown Brothers Harriman & Co. in New York, wrote in a note to clients.
The shared 17-nation euro currency fell on the prospect of a negative deposit rate, which would amount to the ECB venturing into territory few others have dared. With the 17-nation economy mired in recession and weakness spreading to the largest economies in the region, Draghi is ramping up the ECB’s response.
“We will look at all the incoming data and stand ready to act if needed,” Draghi said at a press conference in the Slovakian capital. Asked if further action could include taking the deposit rate into negative territory from zero, he said: “We will look at this with an open mind.”
Sweden’s krona dropped versus all 16 major peers after data showed the nation’s manufacturing unexpectedly contracted in April.
Italy’s two-year note yield fell 13 basis points to a record 1.02 percent, and Spain’s tumbled 18 basis points to 1.55 percent, the least since 2010. France’s 10-year bond yield fell to a record 1.66 percent.
The S&P GSCI Index of commodities surged 1.9 percent, its biggest gain since November and paring yesterday’s 2.1 percent tumble. Oil for June delivery jumped 3.3 percent to settle at $93.99 a barrel, the biggest gain since November 6.
Silver added 2.1 percent to $23.83 an ounce and gold for June delivery climbed 1.5 percent to $1,467.60 an ounce as the ECB’s rate cut boosted the appeal of precious metals as a store of value. Copper climbed 0.8 percent to $6,848 a metric ton. The LME Index of six industrial metals fell 3.2 percent yesterday, the most since December 2011, as nickel and tin joined copper in a bear market.
Natural gas for June delivery fell 30.1 cents, or 7 percent, to $4.025 per million British thermal units on the New York Mercantile Exchange. The Energy Information Administration said inventories rose 43 billion cubic feet in the week ended April 26 to 1.777 trillion cubic feet. Analyst estimates compiled by Bloomberg predicted a gain of 29 billion.
Most emerging market stocks fell as weaker growth in Chinese manufacturing and South Korean exports fueled concern that the global economy is slowing. The MSCI Emerging Markets Index was little changed. The Shanghai Composite Index fell 0.2 percent as it traded for the first time this week.
India’s Sensex Index advanced 1.2 percent, gaining for a third day and reaching the highest level since Feb. 4. The Reserve Bank of India may lower its key rate by 25 basis points at a meeting tomorrow, according to the median estimate of 40 economists in a Bloomberg survey.
The Philippines peso strengthened 0.5 percent versus the dollar to a three-week high as S&P raised the country’s credit rating one step to BBB-, the lowest investment grade. S&P cited moderating inflation and declining reliance on foreign-currency debt as reasons for the upgrade, with a positive outlook.