Stocks Climb With Treasuries as Dollar Drops on SummersMatthew Brown and Nick Taborek
Stocks rose with Treasuries and the dollar weakened as Lawrence Summers withdrew his bid to become Federal Reserve chairman. Crude oil fell after the U.S. and Russia agreed on a plan to eliminate Syria’s chemical weapons.
The MSCI All-Country World Index increased 0.8 percent to the highest level since June 2008 and the Standard & Poor’s 500 Index jumped 0.6 percent, after rallying as much as 1 percent, at 4 p.m. in New York. The Stoxx Europe 600 Index advanced 0.6 percent to a five-year high. The yield on five-year U.S. Treasuries declined six basis points to 1.64 percent. The Bloomberg U.S. Dollar Index dropped 0.3 percent. Crude sank 1.1 percent while corporate bond risk slid to a three-month low.
Summers, a former Treasury secretary, would have tightened Fed policy more than Janet Yellen, who was his main rival to replace Chairman Ben S. Bernanke, according to a Bloomberg Global Poll last week. The Fed will probably taper its monthly bond-buying program by $10 billion to $75 billion this week, a separate survey of economists showed. The U.S.-Russia agreement establishes a framework for finding, securing and destroying President Bashar al-Assad’s stocks of poison gas.
“I don’t think the market knew what kind of a Fed chairman Summers would be, and having him out of the running makes things look a lot more certain,” Colleen Supran, a principal of Bingham, Osborn & Scarborough in San Francisco, which manages $2.7 billion, said in a phone interview. “This tapering announcement that’s expected for Wednesday seems to be accepted by the markets. It’s probably going to be modest.”
The S&P 500 rose 2 percent last week and today came within five points of its record high of 1,709.67 reached on Aug. 2 before paring gains. The benchmark index has rallied 4 percent so far in September, rebounding from the worst monthly loss since May 2012, as reports showed China’s economy strengthened and the U.S. looked less likely to attack Syria.
Wells Fargo & Co. advanced 1.7 percent today to pace gains among financial companies. D.R. Horton Inc. and Toll Brothers Inc. climbed at least 1.1 percent as housing stocks surged. Bristol-Myers Squibb Co. added 3.6 percent after JPMorgan Chase & Co. advised investors to buy the shares. Packaging Corp. of America jumped 11 percent after it agreed to buy Boise Inc. for about $1.27 billion.
Boeing Co. added 3.9 percent for the biggest rise in the Dow. Apple Inc. tumbled 3.2 percent for the largest decline in the S&P 500. The stock has fallen 11 percent since Sept. 9, the day before the newest version of the iPhone was announced.
U.S. equities pared early gains as options exchanges halted trading for about an hour after reporting a malfunction with the industry data feed for disseminating prices. CBOE Holdings Inc., NYSE Euronext, Nasdaq OMX Group Inc. and Bats Global Markets Inc. reported shutdowns that were later resolved.
The issue comes three weeks after the Nasdaq Stock Market halted trading due to concern about a price conduit serving multiple equity exchanges. In a meeting with the heads of major U.S. securities markets last week, Mary Jo White, the chairman of the Securities and Exchange Commission, urged the executives to shore up marketwide price feeds in serving investors and traders.
The S&P 500 will climb 12 percent to 1,900 by the end of next year as valuations rise and investors pour money into mutual funds, according to Citigroup Inc.
Tobias Levkovich, the firm’s chief U.S. equity strategist, said he favors shares of larger companies over smaller ones because foreigners will boost U.S. holdings and may prefer to buy well-known stocks. Computer makers, health-care providers and consumer discretionary stocks will outperform, he said.
“There is plenty of dry powder to push share prices higher as confidence returns,” Levkovich said in a Sept. 13 note. “A shift toward growth stocks seems appropriate along with large-cap names especially if foreign money moves into U.S. markets.”
Treasury 5-year yields dropped six basis points to 1.63 percent, after sliding as much as 14 basis points earlier in the day. The 10-year rate slipped one basis point to 2.88 percent.
“The FOMC meeting and the uncertainty around the tapering story is still the story of the week, and is whipping the market around,” said Aaron Kohli, an interest-rate strategist in New York at BNP Paribas SA, one of 21 primary dealers that trade with the Fed. “We are also seeing a fade of the Summer’s move, which is keeping shorter-dated debt stronger, as the market was too aggressive in pricing in what the lack of a Summer’s nomination means.”
U.S. President Barack Obama said he accepted Summers’ decision to step aside. Summers was one of three candidates mentioned by Obama as possible replacements for Bernanke, whose term as Fed chairman ends on Jan. 31. Yellen, the current Fed vice chairman, was also on the list along with Donald Kohn, a former Fed vice chairman.
Yellen may be viewed by markets as a “shoo-in” after Summers pulled out, National Australia Bank Ltd.’s economics team wrote in a note today. Ten-year Treasuries fell on Sept. 13 after the Nikkei reported Summers would be named Fed chairman.
The Federal Open Market Committee will decide to cut monthly purchases of Treasuries to $35 billion from $45 billion and keep mortgage-bond buying at $40 billion at this week’s meeting, according to a Bloomberg survey of economists.
Fifty-seven percent of those surveyed in a Bloomberg Global Poll said they don’t expect a sudden change in the markets because they already anticipate tapering. Eight percent see a rally and just under a third are looking for declines, based on the Sept. 10 poll of 900 investors, traders and analysts who are Bloomberg subscribers.
“From a short-term perspective, markets will be happy that it looks like Yellen is going to be a frontrunner,” Eric Stein, a money manager in Boston at Eaton Vance Management, said in an interview on Bloomberg Television. “There’s going to be a continuation of Federal Reserve monetary policy.”
Investors have been weighing U.S. economic data to determine the timing and pace of any reductions in central bank stimulus. A report today showed manufacturing in the New York region expanded less than forecast in September even as orders and shipments picked up, while factories’ outlooks improved.
Separate data showed industrial production rose in August by the most in six months, indicating U.S. manufacturing will contribute more to the expansion.
The Stoxx Europe 600 Index advanced to the highest level since June 2008. Hennes & Mauritz AB rallied to a three-year high after sales topped estimates. Remy Cointreau SA soared 7 percent, the most in almost four years, as Chinese cognac shipments increased.
The MSCI Emerging Markets Index jumped 1.4 percent to its highest since June 4. Equity gauges in Turkey, Russia and the Czech Republic increased at least 1.3 percent. Turkey’s Borsa Istanbul National 100 index increased the most in Eastern Europe, adding 3.7 percent. The MSCI Asia Pacific Excluding Japan Index added 1.7 percent with Japanese markets closed. The Hang Seng China Enterprises Index in Hong Kong climbed 1.6 percent and gauges from Thailand, Indonesia and the Philippines rose more than 2 percent.
India’s Sensex was little changed, erasing an earlier gain of as much as 1.8 percent, after a report showed the inflation rate increased more than expected.
Asian currencies climbed to a five-week high. The Bloomberg-JPMorgan Asia Dollar Index of the region’s 10 most-used currencies excluding the yen increased 0.3 percent after touching the highest level since Aug. 12.
The dollar slid against 15 of its 16 major peers. The yen gained 0.2 percent, while the euro appreciated 0.3 percent to $1.3336. Turkey’s lira increased 1.2 percent. New Zealand’s currency rose 0.4 percent and the Australian dollar climbed 0.8 percent.
The cost of insuring against losses on corporate bonds fell to the lowest in more than three months. The Markit iTraxx Crossover Index of credit-default swaps linked to 50 high-yield companies decreased 14.12 basis points to 377.41 basis points, the least since May 22.
The S&P GSCI gauge of 24 commodities fell 0.9 percent, and declined as much as 1.3 percent to a one-month low.
West Texas Intermediate crude fell 1.1 percent to $106.99, a three-week low. Contracts due next month on U.S. gasoline sank
1.8 percent. Soybeans slumped 2.4 percent in Chicago, amid speculation rain in parts of the U.S. Midwest will halt a decline in crop conditions. Copper advanced 0.6 percent to $3.22 a pound, the first gain in a week.
Gold fell for the second time in three sessions in London after the agreement on Syria’s chemical weapons diminished demand for haven assets. Gold for immediate delivery declined
0.6 percent to $1,318.49 an ounce. Futures for December delivery rose 0.7 percent to settle at $1,317.80 on the Comex in New York. Prices climbed as much as 2.1 percent after Summers withdrew from the list of candidates for Fed chairman.
U.S. Secretary of State John Kerry joined top French and U.K. diplomats in insisting that the UN Security Council keep alive the threat of an armed response in case Syria backslides on the chemical-disarmament accord reached over the weekend.
At the United Nations, Secretary-General Ban Ki-moon briefed the Security Council on a report by a UN inspection team that found “clear and convincing evidence” that the nerve agent sarin was used in an attack near Syria’s capital of Damascus, where the U.S. says Assad’s troops on Aug. 21 fired chemical weapons that killed more than 1,400 people.