Stocks Gain on Earnings as Treasuries Rise on Retail Data

U.S. stocks rose as better-than-forecast results at Citigroup Inc. fueled optimism in the earnings season. Ten-year Treasuries climbed for the fifth time in six sessions following slower-than-forecast growth in retail sales, while commodity indexes were little changed.

The Standard & Poor’s 500 Index reached a record for a third straight day, adding 0.1 percent to 1,682.51 at 4 p.m. New York time, and the Stoxx Europe 600 Index closed 0.4 percent higher. Ten-year U.S. Treasury yields declined four basis points to 2.54 percent, reversing an earlier increase of five basis points. The dollar advanced 0.6 percent against Japan’s currency while the S&P GSCI gauge of 24 commodities was little changed as aluminum and nickel lost at least 2 percent, while coffee and cattle rallied.

Citigroup’s 42 percent jump in profit bolstered confidence in earnings at the start of a week when 76 members of the S&P 500 are scheduled to release results. In China, the government reported economic growth that matched estimates, while Fitch Ratings stripped Europe’s temporary rescue facility of its AAA rating after markets closed on the continent.

“We have our focus on earnings,” James Gaul, a portfolio manager at Boston Advisors LLC, which oversees about $2.6 billion in assets, said by phone. “Citigroup had a good report this morning and the question is whether earnings will be strong enough to push us higher. That’s where the short-term focus will be, save for one of the larger economic reports.”

Stocks Moving

Less than 4.9 billion shares changed hands in the U.S. today, the slowest full-day session of the year. The Nasdaq 100 Index increased for a 14th straight day, its longest rally since 1990.

Among U.S. stocks moving today, Leap Wireless International Inc. jumped a record 112 percent after AT&T Inc., the second-largest U.S. wireless carrier, agreed to buy the company for $1.2 billion. Boeing Co. climbed 3.7 percent as a U.K. agency said last week’s fire on a 787 aircraft is unrelated to battery blazes that grounded the fleet earlier this year.

Citigroup rose 2 percent after the third-biggest U.S. bank by assets posted net income of $4.18 billion, or $1.25 a share excluding an accounting adjustment, as stock-trading revenue surged and losses on unwanted assets declined.

Earnings for companies in the S&P 500 are forecast to have grown 2 percent in the period, according to analyst estimates compiled by Bloomberg. Excluding financial firms, per-share profits dropped 1.4 percent, the estimates show.

Wagers that U.S. stock volatility will decline have reached their highest level in almost two years as the Federal Reserve pledges to preserve stimulus and data from jobs to home sales show economic growth. Put trading on the Chicago Board Options Exchange Volatility Index exceeded calls by 73 percent on July 11, the most since October 2011, according to data compiled by Bloomberg.

VIX Plunge

The VIX, a gauge of S&P 500 option prices, has fallen 16 percent to 13.79 in the past eight days, the longest streak of consecutive losses in 21 months.

Treasuries have been whipsawed in recent weeks as investors parsed economic reports and comments from Fed officials for clues to the central bank’s bond-buying plans. Fed Chairman Ben S. Bernanke will deliver his semi-annual monetary-policy report to Congress on July 17-18. The Fed’s unprecedented stimulus sent yields to record lows a year ago and helped send the S&P 500 up 149 percent from its bear-market low in 2009.

The 10-year yield fell 16 basis points last week, the biggest five- day drop since the period ended June 1, 2012. Treasuries declined 2.5 percent in the first half of the year, the most since 2009, according to Bank of America Merrill Lynch index data. They advanced 0.6 percent last week.

Economic Data

Treasuries gained today after retail sales rose less than projected in June as demand cooled at building materials outlets and restaurants, underscoring a second-quarter slowdown in the U.S. economy. The 0.4 percent gain reported by the Commerce Department missed the median forecast of 82 economists surveyed by Bloomberg for a 0.8 percent advance. Economic growth in the second quarter slowed to 1.6 percent from 2.2 percent for all of 2012, according to economist estimates compiled by Bloomberg.

“The primary market influence is the retail-sales data and the implications for second-quarter GDP, which is clearly toward a bias for a slightly lower forecast,” said Ian Lyngen, a government-bond strategist at CRT Capital Group LLC in Stamford, Connecticut.

Another report today showed manufacturing in the New York region expanded in July at the fastest pace in five months as the area’s factory activity stabilized amid a slowdown in growth. The Fed Bank of New York’s general economic index climbed to 9.5, the highest since February, from 7.8 last month. Readings greater than zero signal expansion in New York, northern New Jersey and southern Connecticut. The median projection in a Bloomberg survey of 50 economists called for a reading of 5.

European Markets

European stocks climbed, following their largest weekly gain in more than two months, as banks and retailers rose. Commerzbank AG added 4.7 percent. Focus magazine reported that Germany’s finance minister has discussed selling the state’s holding in the lender to UBS AG.

Kuehne & Nagel International AG, the world’s biggest sea-freight forwarder, gained 2 percent. Second-quarter profit rose 6.3 percent as the market for shipments by sea expanded and a reorganization helped the company reduce costs.

The yen weakened 0.6 percent to 99.81 per dollar and slipped 0.6 percent to 130.40 per euro. Europe’s common currency was little changed at $1.3065.

Portugal’s 10-year bond yield fell 21 basis points to 7.30 percent after surging 78 basis points in the three days through July 12. Greek rates of similar maturity sank 25 basis points to 10.54 percent. The yield on benchmark German bunds was up two basis points at 1.58 percent.

Bailout Fund

The European Financial Stability Facility was downgraded by one level to AA+, Fitch said in a statement in London today. The company attributed the decision as a consequence to its July 12 cut to the rating of Europe’s second-largest economy.

The cost of insuring against losses on corporate bonds dropped, with the Markit iTraxx Europe Index of credit-default swaps on 125 investment-grade companies declining 3.3 basis point to 105.3, the lowest level in more than a month.

The index typically falls as investor confidence improves and rises as it deteriorates. Credit swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt.

The MSCI Emerging Markets Index added 1 percent, the most since June 11 on a closing basis. Stocks in Turkey and Argentina jumped more than 3 percent to lead gains. Brazil’s Ibovespa jumped 2.7 percent, the most since March.

‘Fashionable’ Bears

The Shanghai Composite Index rallied 1 percent. China’s gross domestic product grew 7.5 percent in the second quarter, matching the median estimate of 45 economists in a Bloomberg survey. JPMorgan Chase & Co. cut its 2013 GDP growth estimate to 7.4 percent from 7.6 percent.

“It’s very fashionable to be bearish on China nowadays,” Marino Valensise, who oversees about $60 billion as chief investment officer at Baring Asset Management Ltd., told Francine Lacqua in an interview on Bloomberg Television in London. “The reality is 7.5 percent is in line with an earlier target and the five-year plan says 7 percent. This is an economy which is maturing, so it’s natural and obvious that the rate of growth will slow down.”

Aluminum, nickel and wheat lost at least 1.7 percent to lead declines in the S&P GSCI Index of commodities, while coffee jumped 3.2 percent and feed cattle added 1.6 percent. West Texas Intermediate added 0.4 percent to $106.32 a barrel.

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