U.S. Stocks, Emerging Assets Rise on Fed Boost as Dollar Weakens

Dovish Fed Chair Yellen Stresses Gradual Approach
  • Global equities all but erase 2016 loss on dovish Yellen
  • Oil trims advance after U.S. inventories data; gold falls

Global equities rose, helping a benchmark index almost erase its losses for the year, while emerging-market currencies headed for their best month since 1998 amid a slump in the dollar as investors continued to scale back bets on higher U.S. interest rates.

The Standard & Poor’s 500 Index climbed as a Federal Reserve official signaled the central bank would tolerate above-target inflation instead of tightening policy too soon. The MSCI All-Country World Index rose to its highest level since Jan. 1, while Bloomberg’s Dollar Spot Index slid to a five-month low after Fed Chair Janet Yellen said Tuesday that slackening global growth called for a gradual approach to raising rates. U.S. crude pared gains of more than 4 percent after data showed American supplies rose last week.

Futures show traders now see no chance of Yellen altering monetary policy next month and only a 47 percent likelihood of an increase by November after she dialed back some of the rhetoric made by other officials over the past two weeks. Chicago Fed President Charles Evans said he does “not fear” inflation above 2 percent for a “brief period” to stimulate growth amid threats to American expansion from a slowing global economy. The prospect of a longer period of low borrowing costs in the U.S. has helped revive risk assets in March while weighing on the dollar, set for its worst monthly drop since 2010.

“We’re seeing a follow through from yesterday’s strength following Yellen’s comments,” said Terry Morris, a senior equity manager who helps oversee about $3.2 billion at Wyomissing, Pennsylvania-based National Penn Investors Trust Co. “She backed off any hawkishness she had -- it was a complete dovish story, which the markets wanted, and they’ve responded. Now we have some important data coming up later this week, and earnings are right around the corner.”

Stocks

The All-Country World gauge added 1.2 percent as of 4:20 p.m. in New York, climbing to within a point of erasing its loss for the year. The index, which is still down 0.1 percent in the quarter, has rallied 13 percent since tumbling into a bear market on Feb. 11.

The S&P 500 advanced 0.4 percent to 2,063.95, extending gains sparked by Yellen’s speech on Tuesday. The stock measure has erased its 2016 decline and is poised for a second straight quarterly advance. The S&P 500 has risen 6.8 percent in March, set for its best month since October. The Dow Jones Industrial Average climbed 0.5 percent Wednesday to its highest level since Dec. 29.

Futures on Asian equity indexes signaled gains almost across the board for Thursday, with contracts on gauges from Australia to South Korea climbing at least 0.2 percent. Nikkei 225 Stock Average futures gained 0.5 percent in Osaka, while yen-denominated contracts on the index slipped 0.2 percent on the Chicago Mercantile Exchange.

Currencies

Bloomberg’s dollar index, which tracks the greenback against 10 major peers, fell 0.4 percent Wednesday and has lost 3.8 percent in March, set for a second straight monthly drop and its biggest decline since September 2010.

The U.S. currency slipped 0.4 percent to $1.1334 per euro and weakened 0.2 percent to 112.43 yen. The dollar has fallen against all of its 31 major peers in March with Russia’s ruble and Brazil’s real posting the biggest gains amid a recovery in commodities.

The Fed’s Evans said the central bank may have to allow inflation to overshoot in the short term to meet its target in the longer run.

“I don’t think we should be concerned about going through 2 on the way to making sure we get to 2 with high confidence,” he said. “Of course, we wouldn’t want it to get out of hand. I don’t think we’re looking at anything like that in the U.S., so I think we have the ability to be cautious.”

Emerging Markets

A gauge of 20 developing-nation currencies climbed 0.5 percent, rising for a fourth day and taking this month’s advance to 5.5 percent, equaling a rally in February 1998.

Emerging-market shares climbed Wednesday, as equities in Shanghai rose the most in a month, while South African stocks rebounded from a two-week low and Russia’s snapped their longest run of losses since 2011. The premium investors demand to hold emerging-market debt dropped from the highest level since March 16.

The MSCI Emerging Markets Index rose 2.4 percent, the most in two weeks. The gauge is up 13 percent in March, heading for its biggest monthly increase since October 2011.

Bonds

Treasuries declined, with benchmark yields rising from the lowest level in a month. Ten-year rates rose two basis points, or 0.02 percentage point, to 1.83 percent after falling the past two sessions. Treasuries due in a decade are on track for their best quarter in almost four years as bond traders push back bets on when the Fed will raise rates.

Odds of a U.S. rate increase next month slipped to zero Tuesday, from 10 percent a week ago, while the probability of an increase at the Fed’s June meeting declined to 28 percent, from 46 percent a week earlier, according to futures trading tracked by Bloomberg.

Commodities

West Texas Intermediate crude increased 0.1 percent to settle at $38.32 a barrel in New York, snapping a four-day slide that erased 7.7 percent. While an increase in U.S. oil stockpiles kept inventories at the highest level since 1930, government data showed U.S. refineries processed the most crude since January.

“Inventories are at historic highs, which is hard to ignore,” said Thomas Finlon, director of Energy Analytics Group LLC in Wellington, Florida. “The oil market is moving in tandem with the S&P 500, which is the norm, and the dollar is rebounding.”

Gold slipped, wiping out this month’s gain, as signs of strength in the U.S. labor market and a rally in equities curbed demand for haven assets. Gold futures for June delivery declined 0.7 percent to settle at $1,228.60 an ounce in New York.

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