Stocks Rise Amid Earnings, Dollar Advances on Economy Optimism

Derrick: Downward Pressure Mounting on the Euro
  • Dollar index trades near seven-week high as rate outlook rises
  • Technology companies, carmakers lead gains in Europe, U.S.

Positive earnings set the tone for equity markets, pushing U.S. stocks to fresh records, while the dollar traded at a seven-week high as speculation grew the U.S. will raise interest rates this year. Turkey’s lira fell to a record.

The Dow Jones Industrial Average capped a ninth straight gain in the longest rally since 2013, as Microsoft Corp. jumped after profit topped estimates. The S&P 500 Index closed at a record, with technology shares pacing gains. The euro traded close to its post-Brexit low on speculation of additional central-bank stimulus on Thursday. The lira fell after S&P Global Ratings downgraded the nation’s debt. Gold closed at a three-week low. The New Zealand dollar fell after the central bank said a decline more easing is likely to spur inflation, while Brazil’s central bank held rates steady.

Corporate earnings are helping sustain a run that’s added more than $4.5 trillion to the value of equities worldwide in three weeks. That along with better-than-estimated U.S. economic data is providing comfort to investors even as concern mounts that the U.K.’s vote to leave the European Union will damp global growth. Microsoft Corp. and Morgan Stanley were among the latest U.S. companies to report earnings that surpassed forecasts.

“Markets have been resilient,” Quincy Krosby, a market strategist at Prudential Financial Inc. in Newark, New Jersey, said by phone. “Much of the data coming in and earnings announcements have been better than expected. The market is looking for clarity that companies are more positive about the second half of the year. We’ve been in earnings recession for so many quarters we’re now thinking about earnings as whether they’re ‘less bad.”’

Stocks

The S&P 500 Index rose 0.4 percent at 4 p.m. in New York, pushing its gain since June 27 to 8.6 percent. The Dow average has now closed at seven straight all-time highs during its run that is nine days long, the best streak since 2013.

Microsoft rallied the most since January after posting a better-than-predicted profit, boosting technology shares to the highest in almost 16 years. Morgan Stanley rose 2.1 percent as its fixed-income trading revenue beat estimates. Abbott Laboratories and Intuitive Surgical Inc. also gained on results that exceeded forecasts. Walt Disney Co. lost 1.3 percent after an analyst downgraded the shares.

The earnings seasons so far has delivered more positive surprises than negative ones. Analysts see profit at S&P 500 companies falling 5.8 percent in the second quarter, which would mark a fifth consecutive slide, the longest streak since 2009.

The Stoxx 600 added 1 percent to a four-week high amid encouraging earnings. SAP climbed 5.7 percent after reporting second-quarter results that beat analyst projections. ASML Holding NV advanced 3 percent after Europe’s largest semiconductor-equipment maker said sales increased. Volkswagen jumped 6 percent after saying first-half earnings exceeded estimates.

Europe’s benchmark gauge has alternated between gains and losses each day since last week, after a rebound of about 9 percent following the slump after the Brexit vote on June 23. Investors watching corporate earnings results are also waiting for Thursday’s ECB meeting. Economists in a Bloomberg survey predict rates will remain unchanged.

Currencies

The Bloomberg Dollar Spot Index climbed as much as 0.2 percent to its strongest level since June 1. A Citigroup gauge that tracks the degree to which American data are exceeding projections is at an 18-month high and futures put the chance of a Federal Reserve rate increase this year at 44 percent, up from 9 percent at the end of June.

The pound climbed 0.3 percent to $1.3150 as the U.K. jobless rate, as measured by International Labour Organisation standards, dropped to 4.9 percent in the three months through May.

The yuan jumped as much as 0.28 percent to 6.6780 per dollar amid speculation China’s central bank is trying to prevent the currency from weakening beyond 6.70, a threshold that was breached this week for the first time since 2010.

The lira plunged as low as 3.0893 against the dollar before trading 1.5 percent weaker at 3.0880 to little changed at 3.0428 per dollar, after earlier sinking as much as 0.7 percent to 3.0623, within 0.5 percent of the all-time low reached in September. S&P downgraded the country’s debt on concern over the deterioration in the political environment after a failed coup last week.

Commodities

Raw material prices fell, with the Bloomberg Commodity Index slipping 0.7 percent as industrial metals and gold declined on a stronger dollar. A stronger dollar affects consumption as it reduces demand from other countries.

Oil rose 0.7 percent to settle at $44.94, reversing losses after a government report showed that U.S. crude stockpiles fell a ninth week, marking the longest stretch of declines on record.

Copper futures retreated 0.4 percent to settle at $2.254 a pound in New York, after Chinese data showed output rising in the world’s biggest producer and user of refined metal, underscoring concerns that supply continues to outpace demand. Nickel retreated from its highest close since October. Gold futures fell to a three-week low, slipping 1 percent to settle at $1,319.30.

Bonds

Treasuries declined, with the 10-year yield rising three basis points to 1.58 percent. The yield has risen from an all-time low of 1.318 percent, set earlier this month, as data showed signs of resilience and boosted higher-yielding assets.

German 10-year bonds were little changed as demand at an auction of five-year notes fell to the weakest in almost five years. The bund yield was at minus 0.031 percent, up from a record-low minus 0.205 percent earlier in the month. The nation got bids for 3.49 billion euros at the sale on Wednesday, compared with its target of 5 billion euros.

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