U.S. Stocks Rebound With Commodities as China Market Stabilizes

Updated on
Stocks Still Climbing Despite Tepid Earnings: Tony Dwyer

U.S. stocks snapped their longest losing streak since January as earnings topped estimates and Chinese equities pulled back from a selloff. Commodities rebounded and Treasuries fell ahead of a Federal Reserve policy decision.

The Standard & Poor’s 500 Index increased 1.2 percent by 4 p.m. in New York, after five days of losses. Twitter Inc. pared gains in extended trading after reporting earnings. The Stoxx Europe 600 Index ended 1.1 percent higher amid a flurry of deals. Treasury 10-year notes halted a five-day rally and commodities advanced as copper rebounded from a six-year low. The Shanghai Composite Index fell as much as 5.1 percent, then reversed much of those losses to close down 1.7 percent.

United Parcel Service Inc., Pfizer Inc. and Ford Motor Co. gained Tuesday after reporting earnings that exceeded analysts’ estimates. About 76 percent of the S&P 500 companies that have reported so far this season have beaten expectations on profit. Deal plans announced in Europe’s pharmaceutical, utility and insurance industries also helped revive investor confidence after a resumption of the rout this week in Chinese markets.

“China slowed the big selloff it saw yesterday, and that’s lifting the U.S. market,” Terry Morris, a senior equity manager who helps oversee about $2.8 billion at Wyomissing, Pennsylvania-based National Penn Investors Trust Co., said by phone. “Reported earnings have been OK so far, and we’ll get a lot more reports to digest as the week goes along.”

Chinese Moves

Shares in Shanghai fell, then rose as much as 1 percent before ending Tuesday lower. The gauge tumbled 8.5 percent on Monday amid weaker-than-expected data on industrial company profits and concern that a three-week rally supported by unprecedented government intervention is unsustainable.

The China Securities Regulatory Commission will continue to “stabilize” the market and “prevent systemic risk,” spokesman Zhang Xiaojun said in a statement on the body’s website late Monday.

The S&P 500 climbed back to its average price for the past 100 days after approaching the 200-day moving average early in the day.

The gauge fell 2.9 percent in the previous five sessions as the Chinese stock rout spurred concern about the growth in Asia’s largest economy and after some U.S. corporate earnings disappointed. The index has declined for four of the last five weeks and is up 1.5 percent this month.

Deals Boost

An estimated minimum $15 billion of deals boosted stocks on Tuesday, with Melrose Industries Plc jumping 9.6 percent after agreeing to sell its metering company Elster to Honeywell International Inc. for 3.3 billion pounds ($5.1 billion) in cash.

UPS advanced 5.1 percent after posting profits that beat projections, while Ford climbed 2 percent and Pfizer added 3 percent. DuPont Co. slid 1.5 percent after earnings missed estimates.

Baidu Inc. slid 15 percent in New York after forecasting quarterly sales that missed estimates as China’s biggest search-engine provider expands into delivery services and movie ticketing amid a weakening domestic economy.

Yields on 10-tear Treasuries rose from near their lowest level since July 9, increasing three basis points, or 0.03 percentage point, to 2.25 percent. Rates climbed as the government sold $26 billion of two-year notes, the first leg of $90 billion of fixed-coupon Treasury note sales this week.

Fed policy makers began a two-day meeting Tuesday to assess the strength of economic growth and debate the timing for higher interest rates. Chair Janet Yellen said earlier this month that she expected to raise interest rates this year.

Fed Outlook

The probability that the Fed will raise borrowing costs at this month’s meeting is 2 percent, rising to 76 percent by year-end, based on futures data compiled by Bloomberg.

Consumer confidence slumped in July by the most since August 2011 as Americans grew less upbeat about prospects for the economy, employment and their finances. Other data today showed home prices in 20 U.S. cities rose at a slower pace in the year ended May.

The Bloomberg Commodity Index climbed 0.8 percent Tuesday, for its first gain in five days. The gauge has plunged 9.5 percent this month.

Crude oil rebounded from a four-month low, with futures climbing 1.2 percent in New York. Both West Texas Intermediate and Brent crude entered bear markets in the past week amid surplus in global output and concern that demand from China will wane.

Industrial metals rose and copper rallied from its lowest price since 2009 after the Chinese government’s comments on the stock market. Copper added 2.1 percent in London.

Commodity Currencies

The Australian and New Zealand dollars led a rally in currencies of commodity-producing nations. The Aussie climbed 1 percent to 73.38 U.S. cents. New Zealand’s dollar advanced 1.3 percent to 66.87 U.S. cents. The euro fell against 14 of its 16 peers, losing 0.3 percent to $1.1060. The yen weakened 0.3 percent to 123.56 per dollar.

“For the time being at least, the repercussions from the Chinese stock market dropping will be rather limited,” said Christian Lenk, a fixed-income analyst at DZ Bank AG in Frankfurt.

The Stoxx Europe 600 Index added 1.1 percent, climbing for the first time in six days. The benchmark gauge is up 2.3 percent in July, heading for the biggest monthly increase since February.

Kering SA jumped 5.6 percent after the French luxury-goods maker said Gucci sales grew for the first time in almost two years and reported first-half earnings that beat analysts’ estimates.

Hikma, RSA

Among other deals in Europe, Hikma Pharmaceuticals Plc jumped 12 percent after agreeing to buy Boehringer Ingelheim GmbH’s Roxane business for $2.65 billion in cash and stock.

RSA Insurance Group Plc surged 18 percent after Zurich Insurance Group said it’s evaluating a potential offer for the company. RSA could fetch about 563 pence a share, or about 5.7 billion pounds ($8.8 billion), according to analysts at Panmure Gordon & Co.

For more, read this QuickTake: China's Managed Markets

“If you think the economy will contract, you don’t go on a shopping spree,” said Stephane Ekolo, chief European strategist at Market Securities in London. “These deals and potential deals may be seen as a positive development for the market.”

Before it's here, it's on the Bloomberg Terminal. LEARN MORE