Stocks Rebound From Six-Week Low as Commodities Climb, Yen Falls

  • Dollar rallied this week as odds of a Fed rate-hike jumped
  • Gold on longest run of weekly losses this year; soybeans rise

Why RBC's Golub Thinks We Are in a Low-Yield Environment

Financial markets stabilized after being buffeted this week by speculation the Federal Reserve is moving closer to raising interest rates. U.S. stocks erased a weekly decline, as commodity prices capped a gain, while the yen weakened on reduced demand for haven assets.

Global shares rebounded from a six-week low, with the S&P 500 Index slightly higher for the year a day from the anniversary of its last record. Treasuries fell, with two-year notes posting their biggest weekly plunge since November. Crude slipped from a seven-month high and sugar traded in New York surged to a 20-month high. The yen dropped against all but two of its 16 major counterparts. Nigeria, Africa’s largest economy, shrank for the first time since 2004.

Some $900 billion was wiped off the value of global shares over the last three days as traders stepped up bets on a June rate increase in the U.S., spurred by comments from Fed officials, minutes of the last policy meeting and quickening inflation. While the American economy shows signs of being able to weather higher borrowing costs, the outlook for global growth has been worsening and finance chiefs from the Group of Seven nations are meeting in Japan May 20-21 to discuss ways to tackle this.

“There’s been a little bit of volatility recently and markets are rebounding,” said Joe Bell, a Cincinnati-based senior equity analyst at Schaeffer’s Investment Research Inc. “The Fed minutes surprised people. It seems they’re a little more ready to raise rates in June than people anticipated. When you take a step back the market continues to be grinding sideways.”

Even after the Fed’s minutes Wednesday sent a strong signal that an increase may come as soon as June, investors see plenty of obstacles, including the referendum on Britain’s EU membership and fading growth in China. The odds of a move next month are 28 percent, up from 4 percent a week ago, Fed Funds futures show. That’s even after New York Fed chief William Dudley touted the prospect of policy tightening at one of the central bank’s next two meetings, while Richmond Fed President Jeffrey Lacker said the case for hiking in June would likely be “very strong.”

Stocks

The MSCI All-Country World Index of shares rose 0.7 percent at 4 p.m. in New York, climbing for the first time in four days. In Europe, the Stoxx 600 added 1.2 percent and the S&P 500 rose 0.6 percent.

The U.S. benchmark climbed 0.3 percent in the past five days, snapping a three-week slide. Technology shares rallied as Applied Materials Inc. jumped after the biggest maker of machinery used to manufacture semiconductors forecast third-quarter sales that may beat analysts’ estimates. Chipmakers jumped the most since January, with Intel Corp. rising 1.8 percent. Wells Fargo & Co. increased 0.8 percent as Treasury yields resumed their advance, bolstering a rebound by banks.

The MSCI Emerging Markets Index rose 0.4 percent, paring its weekly decline to 1.4 percent. The gauge had its fifth weekly drop in the longest run of losses since August. The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong rose 0.7 percent.

Commodities

Crude oil declined 41 cents to settle at $47.75 in New York, capping a weekly advance of about 3.3 percent. Prices were boosted this week as data showed U.S. output slid to the lowest since September 2014 and wildfires in Canada expanded.

“We’ve got U.S. demand picking up and combining with bullish supply news filtering through the market,” said Jonathan Barratt, the chief investment officer at Ayers Alliance Securities in Sydney. “Unless there is a clear new fundamental reason to buy oil, I think $50 is a hard psychological level to break through.”

Gold declined a third week, its longest losing streak of the year.

Soybeans in Chicago had their sixth weekly advance, the longest run of gains since 2013. The U.S. Department of Agriculture estimated last week that global inventories will fall 8.1 percent by the end of September next year.

Currencies

The dollar posted its biggest three-week rally since November as traders weighed the possibility of tighter monetary policy in the U.S. The move was also spurred by Bank of Japan Governor Haruhiko Kuroda reiterating that he’s ready to add to stimulus if necessary.

The Bloomberg Dollar Spot Index, which tracks the U.S. currency versus 10 major counterparts, gained 0.8 percent this week, adding to the 2.3 percent advance in the past two weeks. The dollar rose 0.1 percent to 110.11 yen Friday and was little changed at $1.1218 per euro.

The pound declined for the first time in five days versus the dollar and slid from a three-month high against the euro. The pound fell 0.8 percent to $1.4495. It stilled gained 0.9 percent this week, the biggest weekly gain since April 29.

The MSCI Emerging Markets Currency Index rose 0.3 percent, leaving it down 1 percent this week.

Bonds

The yield on two-year Treasury notes was little changed at 0.88 percent. The measure has climbed 13 basis points in the week, as traders adjusted bets on the path of interest rates after Federal Reserve officials indicated they’re considering a June increase if economic data remain steady.

The yield on 10-year notes fell less than one basis point to 1.85 percent, up 15 basis points from a week ago. The yield on similar-maturity German bonds was at 0.16 percent.

Japan’s 10-year yield fell four basis points to minus 0.12 percent. Overseas investors bought 3.6 trillion yen ($32.7 billion) of the nation’s government bonds in April, the most since August 2007, data showed Friday.

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