U.S. Stocks Rise With Oil While Dollar Slips on Stimulus Outlook

Are U.S. Markets Seeing a Relief Rally?
  • ECB begins buying corporate debt; utilities, telecoms targeted
  • Yen advance weighs on Japan index futures; Kiwi dollar jumps

U.S. equities edged closer to an all-time high, while advances in government bonds pushed some yields to record lows amid speculation central banks will extend policies aimed at jump-starting global growth.

The S&P 500 Index rose to its highest level in 10 months, to within 1 percent of a record reached more than a year ago, as bets mount the the Federal Reserve will continue to support the world’s largest economy. The European Central Bank began buying corporate bonds Wednesday, helping drive average yields on investment-grade company debt below 1 percent. Emerging markets equities and currencies rose for a fifth day, while commodities capped their longest run in three months. Oil surpassed $51 a barrel on a drop in U.S. supplies.

Global stocks are trading near their highest levels of 2016, having rallied since February as commodities recovered from a quarter-century low to enter into a bull market this week. Government bonds, corporate credit, gold and emerging markets are also rallying, indicating that investors aren’t deterred by a deteriorating U.S. labor market or the World Bank’s reduction in its global growth forecast for this year. Central bank stimulus helps explain the moves, with traders adding to bets this week that the Fed will stand pat on rates.

“It seems like it’s definitely achievable that we’ll surpass that May 2015 high in the course of the week,” said Walter Todd, who oversees about $1.1 billion as chief investment officer for Greenwood Capital Associates LLC in South Carolina. “The market seems like it wants to try it. Economic data the rest of this week isn’t particularly earth-shattering in terms of the data points would be so I’m not sure what the catalyst would be since we’re out of earnings season. It seems to be that slow grind higher.”

Stocks

The S&P 500 added 0.3 percent to close at 2,119.12 at 4 p.m. in New York, its highest level since July 21. The index sits 0.6 percent below the record of 2,130.82, set on May 21, 2015 and hasn’t moved more than 0.5 percent on a closing basis for more than nine straight days.

“There’s definitely reason for the market to take a breather in conjunction with the notion that we’re near all-time highs,” said Frank Cappelleri, executive director at Instinet LLC. “Many investors aren’t willing to commit new capital around here and at the same time, because of how quickly we’ve come back, we haven’t really seen many aggressive bets on the sell side, either. Treading water at these levels to be honest would be pretty constructive.”

Companies that benefit from a sagging dollar were the strongest performers, with raw-material and industrial stocks leading the climb. Caterpillar Inc. increased 1.7 percent in a fifth day of gains, posting its longest winning streak in two months, while miner Freeport-McMoRan Inc. added 3 percent. Banks stocks rose 0.2 percent as a group with Treasury yields near three-week lows.

Traders have pushed back bets for a U.S. rate hike after last week’s disappointing jobs report. They are pricing in no chance of an increase at the Fed’s next review on June 15, with December now the first month with more than even odds of higher borrowing costs.

The MSCI Emerging Markets Index rose for a fifth day, advancing 0.8 percent. The longest run of gains in two months sent the gauge’s 14-day relative-strength index above the 70 reading that signals to some analysts that an asset is about to fall.

The Stoxx Europe 600 Index retreated 0.5 percent, with Roche Holding AG and Novartis AG the biggest drags on the measure. Travel-and-leisure companies and banks posted the biggest declines of the 19 industry groups on the equity gauge.

Asian index futures outside of Japan signaled gains, with contracts on equity gauges in Sydney and Seoul up at least 0.1 percent. Futures on Japan’s Nikkei 225 Stock Average, however, lost 0.7 percent in Osaka amid the yen’s two-day rally. Markets in China and Hong Kong are closed Thursday for holidays.

Commodities

The Bloomberg Commodity Index, which tracks returns on raw materials, surged 1.9 percent Wednesday to the highest since October as oil jumped to a 10-month high and silver rallied.

West Texas Intermediate crude climbed 1.7 percent to $51.23 a barrel, after touching its highest intraday level since July 16. American crude stockpiles dropped by 3.23 million barrels last week, according to the U.S. Energy Information Administration, in line with analysts’ projections in a Bloomberg survey.

Global coal consumption dropped the most on record last year as the U.S. and other major economies started turning away from the most polluting fossil fuel, according to BP Plc’s annual review of energy trends.

Nickel climbed to the highest level in almost four weeks, leading industrial metals and producers higher, as the ECB’s stimulus and an improving trade outlook for China boosted investor appetite for resources.

Silver in the spot market surged 4 percent, the biggest jump since April. Gold added 1.5 percent, advancing for the third time in four days.

Bonds

Treasuries advanced, after a $20 billion sale of the securities garnered the strongest demand on record from a class of investors that includes foreign central banks and mutual funds. Benchmark 10-year Treasury yields fell two basis points, or 0.02 percentage point, to 1.70 percent.

The ECB made its first purchases of corporate debt as part of efforts to revive investment and inflation in the region. Its stimulus program has helped drive average yields on investment-grade corporate debt in the single currency to the lowest level in more than a year, according to Bank of America Merrill Lynch index data.

Germany’s 10-year bond yields, already at a record-low, are likely to test zero as soon as this week, according to the top-ranked primary dealer of the nation’s debt.
“The market looks poised to test the level,” said Michael Leister, the Frankfurt-based head of rates strategy at Commerzbank AG.

Currencies

The dollar extended its slide into a second day as traders ruled out the possibility of the Fed raising rates at its June meeting. The Bloomberg Dollar Spot Index fell 0.4 percent as the currency slipped 0.3 percent against the euro to $1.1395 and lost 0.4 percent to 106.99 yen.

The MSCI Emerging Markets Currency Index advanced 0.6 percent to its highest close since May 3. The South African rand gained 1.2 percent against the dollar amid the revival in commodity prices, while Brazil’s real added 2.3 percent.

The New Zealand dollar kicked off Thursday trading with a surge of as much as 1.5 percent to its strongest level in almost a year. The country’s central bank kept key rates at a record low for a second straight meeting amid concern about house-price inflation.

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