Global Stocks, Copper Rally to Trim Worst Quarters Since 2011

David Kotok: Markets Will Rally by Halloween
  • S&P 500 gains most in three weeks as biggest losers bought
  • Brazil's real pares worst quarter since 2002 as metals jump

From stocks to commodities to emerging-market currencies, traders got a measure of solace at the end of the most volatile quarter for financial markets since 2011.

U.S. stocks jumped the most in three weeks, while European equities climbed with those in emerging markets as benchmark indexes tracking the shares pared their worst quarter in four years. While copper rallied to ease losses among base metals over the past three months, American oil ended the quarter having traded at its lowest average price since 2009. Treasuries notched up their best quarter of 2015, while gold extended losses.

With almost $11 trillion erased from global shares in the past three months, analysts debated whether the rally Wednesday that stretched from Asia to Europe and the U.S. was just a blip. Riskier markets have sold off amid a prolonged commodity slump, slowing growth in China and an exodus from developing-nation assets as the U.S. prepares to raise interest rates as soon as this year. Friday’s payrolls report will be key, as investors assess whether the job market is strong enough to withstand tightening next month.

“If stocks had had a great quarter, they’d be selling the stocks and buying the bonds but that’s not the case today,” said Andrew Brenner, the head of international fixed income for National Alliance Capital Markets in New York. “I don’t think this means anything for how equities open tomorrow or perform on Friday after the unemployment numbers. “

Between $21 billion and $26 billion in buying of equities and some selling of bonds likely took place Wednesday as pension-fund managers re-balance their portfolios for the end of the quarter, Boris Rjavinski, a strategist at UBS AG, wrote in a Sept. 25 report.

Stocks

The MSCI All-Country World Index climbed 2 percent by 5 p.m. in New York, shaving its quarterly decline to 9.9 percent, still the worst performance since the same period of 2011. The Standard & Poor’s 500 Index added 1.9 percent, the most since Sept. 8, rising for a second day after sliding within 5 points of its Aug. 25 low on Tuesday. At 1,920.03, the index is now 2.8 percent above the closely watched level.

The S&P 500 has lost 6.9 percent since the end of June, capping its first back-to-back quarterly decline in four years after China’s shock currency devaluation sparked its first correction since 2011. Energy and raw-material companies led losses, plunging more than 17 percent over the past three months amid concern weakness in China will curb demand for commodities and crimp global growth.

Investors have also targeted health-care stocks, which helped lead the S&P 500 down 2.6 percent in September. The group lost 5.8 percent, trailing slumps of at least 6.8 percent in energy and commodity producers. Utilities stocks performed best in the month, adding 2.6 percent.

Some of the quarter’s hardest-hit stocks led gains on Wednesday, though investors waiting for an all-clear to buy may need to brace for more drama. Strategas Research Partners LLC pointed out that the S&P 500 has a messy history of attempting to bounce back before settling on an October bottom, with jerky markets lingering after steep August declines in 2011, 1998 and 1990.

“We’re getting a snapback in some of the beaten down names,” said Lew Piantedosi, vice president of growth equities at Eaton Vance Management in Boston, where he helps oversee almost $14 billion. “There also could be some end-of-the-quarter window dressing going on today.”

The Stoxx Europe 600 Index climbed 2.5 percent on Wednesday, trimming its quarterly drop to 8.8 percent. Automakers and miners led declines in the quarter. Glencore Plc rose 12 percent Wednesday to extend a record 17 percent rally from Tuesday and lead commodity producers higher. The commodities trader has recouped most of Monday’s 29 percent tumble as the bounce back in metals prices spurred traders to buy the stock at bargain levels.

Currencies

The Bloomberg Dollar Spot Index, a gauge of the greenback against 10 major peers, strengthened 2.8 percent in the quarter as Federal Reserve officials ramped up their rhetoric advocating for a rate increase before the year is out.

The U.S. Congress passed a stopgap U.S. government spending bill hours before a shutdown deadline was set to expire on Wednesday. While a temporary win, the move provided no indication for how lawmakers will handle further priorities.

The yen strengthened 2.2 percent in the quarter, the biggest gainer among 31 major currencies tracked by Bloomberg. The currency, regarded as a haven along with government bonds, found favor over the past three months as gyrations in China’s equity market and the uncertainty over its economic outlook unnerved investors.

The euro weakened Wednesday, losing 0.6 percent after a report showed consumer prices in the region slipped this month, upping pressure on the European Central Bank to expand economic stimulus. The 19-nation currency pared its second quarterly gain against the greenback, after falling the most since its inception in the first quarter of this year.

The Bloomberg JP Morgan Asia Dollar Index, which tracks the region’s 10 most-active currencies outside of Japan, fell 4.1 percent this quarter, its worst performance since 2008 as the Malaysian ringgit and the Indonesian rupiah slumped to their weakest levels in 17 years. The Chinese yuan ended the quarter down 2.5 percent in offshore trading amid its unprecedented devaluation.

The Brazilian real bounced off a record low, rising 2.8 percent Wednesday in a second day of gains amid speculation policy makers may need to raise rates further to combat inflation. The currency is the worst performer in emerging markets this quarter, sinking 21 percent, the most since 2002, as rampant price growth and a faltering economy damp the appeal of Brazilian assets.

The Brazilian currency remains near a record low
The Brazilian currency remains near a record low

The Colombian peso and the ruble were the second- and third-worst performers this quarter among developing-nation currencies, while commodity-linked currencies from Australia to Norway and South Africa were the biggest losers, with the real, among the majors.

Bonds

Treasuries meandered during the last session of the quarter following two days of gains, with 10-year yields down one basis point to 2.04 percent. The yields, which had fallen 11 basis points over the previous two days amid the selloff in stocks, capped their biggest quarterly drop this year, sinking 32 basis points, or 0.32 percentage point, as falling oil and other commodity prices dimmed the outlook for inflation and as the Fed held off from raising rates.

The average yield investors demand to own emerging-market debt over U.S. Treasuries climbed to the highest level since October 2011 this week, according to JPMorgan Chase & Co. indexes. German government bonds capped a quarterly gain, with 10-year bund yields down 18 basis points since the end of June.

Commodities

The Bloomberg Commodity Index has dropped 15 percent this quarter on concern slowing demand from top raw-material consumer China will exacerbate oversupply issues.

West Texas Intermediate oil fell 0.3 percent Wednesday to $45.09 a barrel in New York. Prices averaged $46.50 in the quarter, the least since the first three months of 2009, as U.S. crude inventories expanded and Iraq, OPEC’s second-largest producer, increased output.

The LMEX Metals Index capped its longest streak of monthly declines since January 2009. Among the six main base metals traded on the LME, only tin advanced in the third quarter, with the LMEX gauge down 8.8 percent.

Copper futures rose 3.8 percent to settle at $2.34 a pound Wednesday, paring their fifth straight quarterly loss to 10 percent. Among precious metals, gold futures lost 1 percent to settle at $1,115.20 an ounce. Prices lost 4.8 percent this quarter, the most in a year. It was the fifth straight quarterly drop, gold’s worst slump since 1997.

Emerging Markets

The MSCI Emerging Markets Index added 2 percent on Wednesday, paring its loss since the end of June to 19 percent, still the most since 2011.

Investors pulled $40 billion out of developing economies in the third quarter, fleeing emerging markets at the fastest pace since the height of the global financial crisis. The outflow was the biggest since the last three months of 2008, according to the Institute of International Finance. About $19 billion of the selloff was in stocks, with the remaining $21 billion in debt, the IIF said in a report issued Tuesday.

The Shanghai Composite Index added 0.5 percent Wednesday, leaving its three-month decline at 29 percent, the biggest drop among 93 equity gauges tracked by Bloomberg. Markets in mainland China are closed for a week-long holiday from Thursday. The Hang Seng China Enterprises Index rose 1.9 percent, trimming its loss for the quarter to 28 percent. 

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