U.S. Stocks Rally With European Equities, Bonds on ECBEric Lam and Jeremy Herron
U.S. stocks rose to records before tomorrow’s employment report, while European equities and euro-area bonds advanced on optimism that new European Central Bank stimulus will boost economic growth.
The Standard & Poor’s 500 Index climbed 0.6 percent to a record at 4 p.m. in New York. The Russell 2000 Index of small companies rallied to the highest since April after hedge-fund manager David Tepper expressed renewed confidence in U.S. equities. The Stoxx Europe 600 Index added 0.4 percent to close near a six-year high, and Germany’s DAX Index briefly topped 10,000 for the first time. The yield on Italy’s two-year note dropped to a record low. Gold rallied the most in three weeks.
European Central Bank President Mario Draghi introduced an unprecedented round of measures to help record-low interest rates feed through to an economy threatened by deflation. The ECB cut its deposit rate to minus 0.1 percent, making the institution the first major central bank to use a negative rate. The benchmark refinancing rate was cut by 10 basis points and the marginal rate was reduced by 35 basis points to 0.4 percent. The U.S. government jobs report for May is due tomorrow.
“Mario Draghi is taking a sledgehammer to the disinflationary environment in the euro zone,” Chad Morganlander, a fund manager at Stifel Nicolaus & Co., which oversees $160 billion, from Florham Park, New Jersey, said. “His actions are well beyond expectations.”
A worsening in the economic outlook and a prolonged spell of slow inflation has prompted the ECB to act. Draghi said the bank will begin new, “targeted” offerings of liquidity to banks to encourage them to lend money to the real economy. While conceding that rates are at the lower bound “for all practical purposes,” he signaled the the ECB is willing to act again.
“The stimulus from Europe is a positive thing, especially when you compare it to the fact that the U.S. is starting to ease up,” Joe Bell, senior equity analyst at Cincinnati-based Schaeffer’s Investment Research Inc., said in a phone interview. “Stimulus is being added from a different market.”
In the U.S., data showed fewer Americans filed applications for unemployment benefits over the past month than at any time in seven years, a sign the labor market continues to strengthen. A private report on payrolls yesterday indicated companies in the U.S. added fewer jobs than forecast in May.
Tomorrow’s report may show private payrolls, which exclude government agencies, increased 210,000 in May after a 273,000 gain in the month prior, according to the median estimate in a Bloomberg survey.
Fed officials are watching the labor market as they move to complete their bond-purchase program late this year and start considering the timing of the first interest-rate increase since 2006. Central-bank stimulus has helped propel the S&P 500 higher by as much as 187 percent from its bear-market low in March 2009.
U.S. equity gains accelerated today after Tepper, founder of $20 billion hedge-fund firm Appaloosa Management LP, said in an interview with CNBC that his concerns over the market have eased. On May 15, he described the market as “kind of dangerous” and expressed nervousness because the economy wasn’t expanding at a sufficient pace.
The Russell 2000 rallied 2 percent to the highest since April 22. The gauge has jumped 5.3 percent since reaching a low in May. The Nasdaq 100 Index of technology shares added 0.9 percent to a 13-year high, while the Nasdaq Composite Index is 1.4 percent below a 14-year high reached in March.
Among stocks moving, Twitter Inc. added 3 percent after it agreed to buy Namo Media as the microblogging site seeks to bolster its reach in mobile advertising. Ciena Corp. surged 19 percent as earnings beat analyst estimates. Sprint Corp. dropped 4 percent after people with knowledge of the matter said it is nearing a price agreement for a potential acquisition of T-Mobile US Inc.
In Europe, the Stoxx 600 rose a second day to close near the highest since January 2008. Fourteen of the 19 main groups in the benchmark gauge advanced.
Italian two-year yields fell 13 basis points, or 0.13 percentage point, to 0.62 percent after sliding to 0.594 percent, the lowest since Bloomberg began collecting the data in 1993. The yield difference between Spanish 10-year bonds and German debt reached the narrowest since July 2010 after Spain’s rate fell five basis points to 2.82 percent.
The euro rose from a four-month low against the dollar amid speculation the ECB’s stimulus measures won’t be enough to weaken the currency as part of efforts to boost growth.
Treasury 10-year notes rose for the first time in six days before the Labor Department report tomorrow. The 10-year yield fell two basis points to 2.58, after touching 2.64 percent, the highest since May 13.
Gold rallied 0.7 percent to $1,253.30 an ounce in London, the biggest gain since May 14, as some traders closed bets on falling prices. Prices have climbed 4.2 percent in 2014.
Bullion’s 60-day historical volatility is at the lowest since April 2013, and the value of exchange-traded funds backed by gold shrank by $2.6 billion in May, the most this year. The metal’s appeal as a haven diminished as U.S. equities surged and tension between Ukraine and Russia eased. More than $1.1 trillion was added to the value of global stock markets last month.
The Standard & Poor’s GSCI gauge of 24 raw materials added 0.1 percent following four days of declines, boosted by gains in precious metals.
West Texas Intermediate crude for July delivery slipped 0.1 percent to $102.58 a barrel, rebounding from an earlier slide of 1 percent. Wheat which fell to a three-month low.