Stocks Rise With Debt as Shift in Fed Speculation Weakens Dollar

  • U.S. inflation data underwhelms, pricking rate expectations
  • Most Asian index futures signal more gains amid global rally

Pedestrians are reflected in an electronic stock board outside a securities firm in Tokyo, Japan, on Thursday, Jan. 7, 2016. Japanese stocks fell for a fourth day, extending a global slide that's seen shares post their worst start to a year since 2000, after China again cut the reference rate for the yuan and trading in the world's second-biggest equity market was halted.

Stocks rallied around the world, while the dollar fell amid speculation the Federal Reserve will stick to a gradual tightening of monetary policy.

Equities jumped the most in almost four weeks as investors parsed earnings reports and energy shares rebounded. The greenback extended its retreat from a seven-month high as data showed consumer prices excluding food and fuel costs in the U.S. rose less than forecast. Oil rallied, closing above $50 a barrel in New York as investors mulled the likelihood of OPEC following through with the production cuts agreed on last month.

Speculation is mounting that the Fed will boost interest rates in December but take a slow path when it comes to further increases amid mixed signals from the U.S. economy. While the cost of living rose at the fastest pace in five months in September, the increase in prices excluding volatile food and fuel costs trailed estimates, data Tuesday showed. Fed Chair Janet Yellen laid out arguments last week for remaining accommodative without excluding a 2016 hike, a move that would see U.S. policy further diverge from the approaches taken by central bankers from Japan to Europe.

“With underlying inflation underwhelming, it’s catalyzed more profit-taking on the buck’s recent outperformance,” said Joe Manimbo, an analyst with Western Union Business Solutions, a unit of Western Union Co., in Washington. Yellen’s remarks last week underscored the likelihood of a “lethargic pace” of rate increases, he said.

To read more on the U.S. prices data, click here.

Stocks

The MSCI All-Country World Index rose 0.9 percent as of 4:15 p.m. in New York, bringing its advance this year to 3.5 percent.

The S&P 500 Index climbed 0.6 percent to 2,139.60, rising from a one-month low. Goldman Sachs Group Inc. gained 2.2 percent after posting a 47 percent increase in earnings, while Netflix Inc. surged 19 percent after reporting a jump in subscribers that alleviated concern about slowing growth. International Business Machines Corp. slipped the most since June after saying that profit margins shrank for the fourth quarter in a row.

“We’ve been selling off for the better part of a week at this point, and earnings have been good enough to get us into this bounce,” said Michael Antonelli, an institutional equity sales trader and managing director at Robert W. Baird & Co. in Milwaukee.

While only 57 S&P 500 members have reported so far, 84 percent have posted earnings that exceeded analysts’ estimates, with expectations on sales beaten for 68 percent of companies, according to data compiled by Bloomberg.

Banks in the Stoxx Europe 600 Index rallied ahead of the European Central Bank’s meeting on Thursday, with the regional benchmark adding 1.5 percent. Glencore Plc and Fresnillo Plc paced an advance in miners. Benchmark gauges in Hong Kong, India and the Philippines led gains in emerging-market equities.

Index futures foreshadowed more gains in Asian equities, with index futures on Japan’s Nikkei 225 Stock Average up 0.6 percent in Chicago. Contracts on stock gauges in Australia, South Korea and China rose at least 0.1 percent.

Currencies

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major counterparts, fell 0.2 percent. The gauge touched its highest level since March last week.

The dollar has weakened this year as ructions in global markets and uneven economic data deterred the Fed from tightening policy further.The losses had narrowed in recent weeks on odds the central bank is getting closer to a hike, prompting hedge funds and money managers to boost net bullish bets on the greenback. Futures pricing indicates a gradual pace of rate increases, with traders seeing a 63 percent odds of a move by December, down from 68 percent a week ago.

“The market has clearly come to a stronger view that they’ll raise rates in December, but that has very little influence on where rates are perceived to go in the longer term,” said Adam Cole, head of global foreign-exchange strategy at Royal Bank of Canada in London.

The pound advanced versus the dollar as signs of quickening inflation suggested the Bank of England may have limited scope to ease monetary policy further.

Commodities

West Texas Intermediate oil for November delivery advanced 0.7 percent Tuesday to settle at $50.29 a barrel on the New York Mercantile Exchange. Brent for December settlement climbed 16 cents to $51.68 a barrel on the London-based ICE Futures Europe exchange, leaving the global benchmark at a $1.06 premium to December WTI.

Speculators have bolstered bullish oil bets since the OPEC accord was reached on Sept. 28 in Algiers, but fractures have emerged within the group that threaten to derail a final agreement on quotas, expected in Vienna on Nov. 30. U.S. crude inventories probably rose last week, reviving concern about oversupply, according to analysts surveyed by Bloomberg.

“We’re waiting for new headlines,” said Rob Haworth, a senior investment strategist in Seattle at U.S. Bank Wealth Management, which oversees $133 billion of assets. “Maybe API, but for sure the EIA data will be market moving,” he said, referring to industry and government stockpiles data.

“We’re looking for a rise in production and it will be interesting to see if production gains,” Haworth said.

Industrial metals rebounded from their lowest point in almost four weeks as a surge in new credit in China pointed to stabilization in the economy of the world’s biggest commodities buyer. Nickel and tin climbed more than 1 percent.

Bonds

Treasuries gained after the weaker-than-expected core inflation reading. Yields on five-year notes fell to the lowest level in two weeks and a gauge of the U.S. yield curve steepened, with the gap between five- and 30-year rates near the widest since June, as shorter maturities outperformed longer-dated debt.

The U.S. five-year bond yield declined three basis points, or 0.03 percentage point, to 1.23 percent, touching its lowest intraday level since Oct. 5, according to Bloomberg Bond Trader data. 

Benchmark 10-year note yields fell three basis points as well, to 1.74 percent, while the gap between five- and 30-year debt expanded to about 1.28 percentage points. The 10-year break-even rate, a gauge of inflation expectations that measures the difference between yields on 10-year notes and similar-maturity Treasury Inflation Protected Securities, was about 1.68 percentage points.

“CPI came out a little lower than expected on the core, which forces the curve to steepen,” said Charles Comiskey, head of Treasury trading in New York at Bank of Nova Scotia, one of 23 primary dealers that trade with the central bank. “The lower inflation report pushed the Fed back a little bit.”

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