Stocks, Commodities Gain on U.S. Budget; Treasuries Fall
Stocks rallied, sending the Standard & Poor’s 500 Index to a two-month high, and commodities gained on signs of progress in U.S. budget talks. Thirty-year Treasury yields climbed to a three-month high.
The S&P 500 advanced 1.1 percent to 1,446.79 at 4 p.m. in New York, with trading volume 21 percent higher than the 30-day average. Treasury 10-year yields increased six basis points to 3 percent and reached 3.03 percent, the highest since Sept. 17. The S&P GSCI Index of raw materials rose 0.5 percent as energy commodities led gains before U.S. supply data tomorrow. The yen traded near a 20-month low versus the dollar, while Sweden’s krona appreciated against 15 of 16 major peers on speculation the Riksbank is done cutting interest rates.
President Barack Obama proposed a budget plan that would cut about $1.2 trillion in federal spending and raise a similar amount in taxes in the next decade, according to a person familiar with the talks. European Central Bank President Mario Draghi yesterday said ECB policies and governance reforms in the euro area have revived confidence that will help foster a gradual economic recovery.
“There are signs of progress in the negotiation over the fiscal cliff,” Brian Gendreau, a market strategist at El Segundo, California-based Cetera Financial Group Inc., said in a telephone interview. The firm has about $20 billion in assets under management. “People have been very fearful to move into stocks and this might be one of the things to get them go back to stocks.”
Among U.S. stocks, Bank of America Corp., United Technologies Corp., Hewlett-Packard Co. and Intel Corp. rose more than 1.9 percent to lead the Dow Jones Industrial Average up 115.57 points. American International Group Inc. (AIG) added 1.6 percent after the insurer raised HK$50 billion ($6.5 billion) from the sale of its remaining stake in AIA Group Ltd.
Gauges of energy, technology and financial shares rose at least 1.5 percent to lead gains in all 10 of the main industry groups in the S&P 500. An index of homebuilders rallied 2.3 percent as a report showed confidence among U.S. homebuilders climbed in December to the highest level in more than six years. Apple Inc., the world’s most valuable company, advanced 2.9 percent for a second straight gain.
House Speaker John Boehner said he will push a budget “plan B” measure that would include tax increases on income of more than $1 million, while continuing to negotiate with President Barack Obama.
Obama’s plan would change the inflation measure used to calculate cost-of-living increases for Social Security and raise the income threshold for tax increases to $400,000, from an earlier proposal of $250,000. The deal would also raise the U.S. debt limit for two years and then change the rules to eliminate the need for congressional approval.
Obama and Boehner met at the White House yesterday with days left to avert more than $600 billion in automatic spending cuts and tax increases that go into effect next year if a budget deal isn’t reached.
The S&P 500 has climbed 15 percent this year as the Federal Reserve vowed to safeguard the economic recovery. Europe’s Stoxx 600 has advanced 15 percent in 2012, set for the first annual gain since 2010, amid increased confidence that policy makers are taking control over the debt crisis. The MSCI Asia Pacific Index (MXAP) has risen 12 percent this year. Asia’s benchmark rose 0.5 percent today.
Draghi, testifying yesterday to the European Parliament’s Economic and Monetary Affairs Committee in Brussels, said the central bank expects “a beginning of a recovery in the second part of next year.” The ECB’s commitment to preserve the euro at any cost and the establishment of a single banking supervisor have improved financial-market sentiment, he said.
About three stocks rose for every two that fell on the Stoxx 600. (SXXP) Trading was 37 percent higher than the 30-day average, data compiled by Bloomberg show. Trading on Spain’s IBEX was almost three times higher and on the Hang Seng Index of Hong Kong shares it was 125 percent higher.
BHP Billiton Ltd., the world’s largest mining company, climbed 1.2 percent after China’s leaders were said to set a target for the economy to grow 7.5 percent next year. The government also decided to keep inflation at about 3.5 percent, according to two bank executives and a regulatory official who were briefed on the targets.
Sweden’s krona strengthened 0.3 percent against the euro and 0.8 percent against the dollar after the Riksbank signaled it will not cut interest rates in 2013 after lowering its benchmark rate to 1 percent from 1.25 percent. The euro gained 0.5 percent to $1.3226, the strongest level since May.
Spanish government bonds rose as the nation sold 3.52 billion euros of bills, meeting the maximum target of 3.5 billion euros that the Treasury set for its last debt sale of the year. Spain’s two-year note yields fell four basis points to 2.86 percent, while its 10-year rate declined 13 basis points to 5.30 percent.
U.K. 10-year gilt yields rose for an eighth day, the longest streak of increases since February 2011, as the Office for National Statistics said inflation held at the highest since May last month.
The cost of insuring corporate debt dropped to the lowest since March, with the Markit iTraxx Europe index of credit- default swaps linked to 125 investment grade companies falling three basis points to 111 basis points.
Oil rose for a third day, with futures advancing 0.8 percent to $87.93 a barrel in New York. An Energy Department report tomorrow may show crude supplies shrank last week while fuel stockpiles climbed, according to a Bloomberg News survey. Crude fell 11 percent in 2012.
Gasoline advanced 1.4 percent to $2.6909 a gallon. U.S. stockpiles rose 1.9 million barrels, or 0.9 percent, to 219 million in the seven days ended Dec. 14, the highest inventory since March 30, according to the median of seven analyst estimates before an Energy Department report tomorrow. Regular gasoline at the pump, averaged nationwide, fell to the lowest price in a year at $3.254 a gallon, according to Energy Department data.
Japan’s Nikkei 225 Stock Average advanced 1 percent today. The gauge has climbed 10 percent in the past month on speculation the Liberal Democratic Party, which returned to power in last weekend’s elections, will spend more to boost the economy and pressure for more bond purchases by the central bank, which meets tomorrow. Shares of Nomura Holdings Inc., Japan’s biggest brokerage, jumped 6.4 percent today.
The MSCI Emerging Markets (MXEF) Index rose 0.6 percent, as benchmark indexes in the Czech Republic, Argentina, Mexico and Brazil surged more than 1.1 percent. The developing-markets gauge has gained 14 percent this year.
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