All Markets Gain for Second Time in 2012 on Recovery
For the second time this year, stocks, bonds, commodities and the dollar posted monthly gains amid optimism central bank stimulus programs are bolstering growth in the world’s biggest economies.
Raw materials led, with the Standard & Poor’s GSCI Total Return Index (SXXP) rising 1.5 percent. The MSCI All-Country World Index of equities added 1.3 percent, including dividends. Bonds of all types returned 0.53 percent on average for a fifth monthly advance, the longest run of gains since 2010, according to Bank of America Merrill Lynch’s Global Broad Market Index. Intercontinental Exchange Inc.’s Dollar Index, which tracks the currency against those of six major U.S. trading partners, advanced 0.29 percent, its first increase since July.
The world economy has recovered to its strongest level in 18 months as China’s stimulus measures bolster growth and the U.S. seeks to avoid the so-called fiscal cliff, a Bloomberg Global Poll of investors showed Nov. 29. The Federal Reserve has pumped more than $2.3 trillion into the financial system, while the Bank of Japan (8301) is providing more than $800 billion. The European Central Bank has made about $1 trillion available in three-year loans to banks.
“With so much monetary stimulus around the world, we’ve taken the brakes off the global economy,” Bruce McCain, chief investment strategist at the private-banking unit of KeyCorp in Cleveland, said in a Nov. 27 phone interview. His firm oversees $20 billion. “It should mean improved growth into next year. Officials in Europe and in the U.S. seem to realize that we’re on the precipice of some pretty negative outcomes if they don’t do something to find better solutions.”
The last time all four market measures rose in tandem was in July, when drought sent U.S. corn prices to a record and European Central Bank President Mario Draghi’s pledge to protect the euro buoyed stocks. Before that, prices hadn’t risen together since April 2010, when concerns about Greece’s ability to pay debt were heating up and economic reports were showing signs of improvement in the U.S.
While asset prices rose in November, stocks and commodities tumbled earlier in the month after U.S. President Barack Obama won re-election, continuing a conflict in Congress over the fiscal cliff of $600 billion of mandatory spending cuts and tax increases due to begin Jan. 1. The MSCI All-Country World Index slid 1.5 percent Nov. 7 and the S&P GSCI index declined 2.5 percent, the biggest drop since July 23.
Sentiment improved after Obama said Nov. 18 that he was confident of striking a deal with Republican Congressional leaders. Signs of a stalemate in the talks sent the Dollar Index to a one-month low today.
In televised interviews broadcast over the weekend, U.S. Treasury Secretary Timothy F. Geithner and House Speaker John Boehner blamed each other for the standoff. The Dollar Index slid as much as 0.3 percent to 79.942, the least since Oct. 31.
Two-thirds of the 862 analysts surveyed in the Bloomberg Global Poll described the world economy as either stable or improving last month, the largest proportion since May 2011 and up from just over half in September.
Base metals were four of the top five performers on the GSCI index last month, with aluminum rising 10 percent. Zinc was second, with a 9.7 percent gain. Soybeans and natural gas were the biggest losers, dropping 7.1 percent and 6.9 percent, respectively. The GSCI is up 0.7 percent in 2012.
West Texas Intermediate oil advanced 3.1 percent on the New York Mercantile Exchange, leaving it $22.32 below Brent on the ICE Futures Europe exchange, $5.56 short of the widest spread ever. WTI has slipped 10 percent this year. Brent has risen 3.6 percent.
WTI may recover 13 percent in 2013, according to the median of 33 analyst forecasts compiled by Bloomberg. Copper may be little changed, a separate survey of 23 analysts showed.
The Stoxx Europe 600 Index rose 2.2 percent last month, bringing its advance this year to 17 percent. It was the sixth straight month of gains, its longest rally since 2006. The S&P 500 climbed 0.6 percent, extending its increase in 2012 to 15 percent. The MSCI Asia Pacific Index added 2.4 percent, bringing its growth this year to 13 percent.
The U.S. equity benchmark will fall 1.2 percent to 1,399 by the end of the year, according to the average of 14 Wall Street strategists tracked by Bloomberg. It will recover 11 percent in 2013, the average of eight forecasts showed.
Equities as measured by the Stoxx 600 slid to the lowest in more than two months on Nov. 15 after the European Union’s statistics office in Luxembourg said gross domestic product in the 17-nation currency bloc slipped 0.1 percent in the third quarter, after a 0.2 percent drop in the previous three months.
Fourth-quarter earnings at Standard & Poor’s 500 Index companies will grow 3.9 percent, according to analysts’ estimates compiled by Bloomberg. Excluding financial companies, profits will grow 0.8 percent, the data showed.
The dollar strengthened 3.4 percent against the yen in November, partly as Shinzo Abe, the front-runner to become Japan’s next prime minister, called for unlimited stimulus. Japan’s cabinet approved 880 billion yen ($10.7 billion) of additional stimulus on Nov. 30.
“The U.S. economy is better than people expected,” said Hiroki Shimazu, an economist in Tokyo at SMBC Nikko Securities Inc., a unit of Japan’s third-largest publicly traded bank by assets. “In Japan, the central bank would have to print a lot of money, and the yen will weaken. I don’t think the decline is over.”
The Fed in September unveiled a plan to buy as much as $40 billion in mortgage-backed securities a month in an effort to bolster the economy and reduce unemployment. The central bank’s previous rounds of growth-boosting measures weakened the dollar and made commodity investments more attractive. Its second round of quantitative easing, known as QE2, began on Nov. 3, 2010.
The Dollar Index (DXY) may rise more than 3 percent to 82.5 by the end of next year, according to the median forecast of 13 analyst forecasts compiled by Bloomberg News. It’s down about 0.3 percent so far this year.
Of 26 bond markets tracked by Bloomberg and the European Federation of Financial Analysts Societies, all except Australia’s gained. U.S. Treasuries handed investors a 0.6 percent return, bringing their advance this year to 2.7 percent.
Every market is poised to generate positive returns this year for the first time since the peak of the financial crisis in 2008, according to data compiled by Bloomberg. Gains range from Portugal’s 52 percent to 1.9 percent for Sweden.
Greek bonds led the advance in November, surging 25 percent. European finance ministers arranged an emergency aid package for Greece on Nov. 27 in their latest bid to keep the euro intact. Greece today offered 10 billion euros ($13 billion) to buy back bonds issued earlier this year as it sought to cut its debt load.
Bond investors have been willing to accept lower interest rates to hold government debt because of slowing inflation. Average government bond yields dropped to 1.37 percent, from 1.76 percent on Dec. 31, Bank of America Merrill Lynch’s Global Sovereign Bond Index showed.
“There’s no inflation, so people are still buying,” Yoshiyuki Suzuki, the head of fixed income in Tokyo at Fukoku Mutual Life Insurance Co., which has about $70 billion in assets, said in a Nov. 28 interview. “Interest rates should go lower.”
The Fed’s preferred measure of inflation expectations, the five-year, five-year forward break-even rate, fell to 2.634 percent as of Nov. 28, versus the average of 2.75 percent for the past decade.
The U.S. economy is poised to grow 2.2 percent this year and 2 percent in 2013, based on Bloomberg surveys of economists. Japan’s will expand 2 percent this year and 0.8 percent in 2013, while the euro area contracts 0.5 percent in 2012 before recovering next year, the surveys showed.
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