Stocks Rally With Oil as Risk Assets Rebound; Treasuries Retreat

U.S., Emerging Market Growth 'Not So Bad:' Erik Nielsen
  • S&P 500 caps its longest rising streak since December
  • Iran backing output freeze underpins crude oil recovery

Stocks rallied as investors piled back into riskier assets, sending emerging-market currencies and equities higher after a retreat in the yuan triggered losses in Asia. U.S. crude oil rose back above $30 a barrel.

The Standard & Poor’s 500 Index climbed a third day, its longest rising streak this year, to extend its rebound from a 22-month low reached Feb. 11. Some of this year’s most beaten-down stock sectors, including technology, energy and banks, led the recovery amid speculation the slump that sent global equities into a bear market last week. Developing-nation currencies and shares also gained as oil prices extended their rally in afternoon trading. Treasuries declined for a third day, their longest slump since December.

Gains in global stocks are coming back virtually as fast as the losses that sent the S&P 500 to its worst start to any year, with almost half of 2016’s decline made up in four days. The rally is occurring amid oil’s rebound from an almost 13-year low touched last week, evidence the Federal Reserve is anxious about the impact of market turmoil on the U.S. economy and better-than-expected manufacturing data. Iran backing an oil output freeze proposed by Russia and Saudi Arabia, without saying whether it would join the curb, fueled crude’s gains Wednesday. A weaker central bank fixing hit China’s yuan.

“The recent pullback in valuations has made risk assets and equities more attractive than they were coming into the end of the year,” said Stephen Wood, who helps manage $237 billion as chief market strategist for North America at Russell Investments in New York. “For asset managers, that provides an opportunity. Volatility is likely to remain -- valuations have come down, but fundamentals have not radically changed. Oil is still showing weakness, the Federal Reserve is still in play, the U.S. looks to be doing OK and China is growing at a slow rate.”

Stocks

The S&P 500 added 1.7 percent to 1,926.82 as of 4 p.m. in New York, bringing its three-day advance to 5.3 percent. U.S. index futures held onto their gains even after a report showed new-home construction cooled in January. Separate data showed factory output rose last month by the most since July 2015, while wholesale prices in the U.S. unexpectedly increased in January.

After a tumultuous start to the year, U.S. stocks are staging their longest recovery as the domestic economy shows signs of improvement. Citigroup Inc.’s U.S. Economic Surprise Index rose six straight days through Monday, its longest streak of gains since October. The year’s most battered shares have posted the biggest gains, with carmakers, retailers and energy companies jumping more than 2 percent.

A basket of companies with the most bearish bets climbed 3.9 percent Wednesday, doubling the gain in the S&P 500 for a second straight day. The gauge compiled by Goldman Sachs Group Inc. has rallied almost 10 percent in three days, a sign one of the things fueling the rally is purchases by short sellers.

The Stoxx Europe 600 Index rose 2.6 percent Wednesday, as Credit Agricole SA led a rebound in lenders, rallying 14 percent after also saying it will sell back stakes in regional banks to shore up capital.

Glencore Plc pushed a gauge of commodity stocks higher, advancing 17 percent after the Swiss trader said it won new loan commitments from banks to replace an existing $8.45 billion revolving credit facility.

The MSCI Asia Pacific Index dropped for the first time in three days, with Japan’s Topix gauge sliding 1.1 percent.

Emerging Markets

MSCI’s Emerging Markets Index climbed 0.7 percent, while a gauge of 20 developing-market currencies reversed earlier losses to rise 0.8 percent. Russia’s ruble, Mexico’s peso and South Africa’s rand led gains, strengthening at least 2 percent.

Mexico’s currency jumped after the nation announced a wide range of measures to bolster investor confidence, including spending cuts, an increase to the benchmark lending rate and new intervention efforts to support the world’s worst-performing major currency this year.

The Hang Seng China Enterprises Index of mainland shares traded in Hong Kong fell 1.2 percent after UBS Group AG and Bocom International Holdings Co. said China’s lending surge can’t continue. S&P said the increase in debt relative to gross domestic product could pressure the country’s credit rating. The Shanghai Composite Index climbed 1.1 percent.

The yuan fell 0.2 percent to 6.5290 per dollar in Shanghai after the People’s Bank of China cut its reference rate by 0.16 percent to a one-month low of 6.5237, surprising some analysts who had forecast smaller adjustments in the so-called fixing ahead of a Group of 20 meeting next week.

The weak fixing unsettled Asian markets, with Malaysia’s ringgit and South Korea’s won sliding more than 0.8 percent.

Commodities

West Texas Intermediate crude futures rose 5.6 percent to $30.66 a barrel. WTI slid 1.4 percent on Tuesday on news of the Saudi-Russia agreement to curb output, the first significant cooperation between OPEC and non-OPEC producers in 15 years. Brent advanced 7.2 percent Wednesday to $34.50.

Oil Minister Bijan Namdar Zanganeh said Iran supports the Saudi-Russia proposal, according to the Shana news agency, though he didn’t mention if the country would deviate from plans to restore exports after the lifting of sanctions last month. Zanganeh will meet with counterparts from Iraq, the second-biggest OPEC producer, and Venezuela on Wednesday, according to the Iranian news agency.

Gold in the spot market advanced 0.8 percent to $1,209.84 an ounce, halting a three-day drop, while copper capped its longest stretch of gains since December.

Currencies

The greenback weakened for the first time in five days, with the Bloomberg Dollar Spot Index losing 0.5 percent, as the rebound in crude boosted demand for the currencies of commodity-exporting countries.

The dollar was up 0.2 percent to $1.1126 per euro and was little changed at 114.01 yen after earlier climbing as much as 0.6 percent. The Swiss franc retreated 0.4 percent amid the resurgence in risk appetite.

Bonds

Yields on U.S. 10-year Treasuries increased four basis points, or 0.04 percentage point, to 1.81 percent, after earlier touching 1.74 percent.

“There’s been a stabilization in oil prices, stocks are up and we got better-than-expected economic data so we’re seeing a little bit of pressure on fixed income,” said Dan Mulholland, head of Treasury trading in New York at Credit Agricole.

Germany’s 10-year bund yields were at 0.27 percent after the government auctioned 5 billion euros ($5.6 billion) of 2026 bonds at an average yield of 0.26 percent, the least since April. Yields on Japanese government debt due in a decade rose by three basis points to 0.055 percent.

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