U.S. Stocks Almost Erase Drop on Deals, Microsoft; Dollar Gains

  • Timer Warner jumps on speculation AT&T is pushing for takeover
  • Microsoft surges to record high after results as GE declines

Sri-Kumar: No Quick Change Coming for U.S. Economy

U.S. stocks almost erased their losses amid deal talks while Microsoft Corp. surged to a record after its earnings topped estimates. The dollar rose to a seven-month high.

Consumer shares climbed after British American Tobacco Plc’s $47-billion bid for Reynolds American Inc. and reports that AT&T Inc. is pushing to clinch an agreement to buy Time Warner Inc. The rally offset disappointing outlooks from General Electric Co. and Advanced Micro Devices Inc. and concern that a stronger greenback will damp corporate earnings. Oil held above $50 a barrel as investors assessed the likelihood of a deal to reduce supply.

The earnings season is picking up pace as investors gauge the strength of corporations amid uneven economic growth. More than than 80 percent of the S&P 500 Index’s companies that have released third-quarter results so far beat expectations, while analysts still forecast a contraction in profits. The dollar’s advance has also been in the spotlight as it reflects bets that U.S. monetary policy will diverge from stimulus measures in Europe and Asia.

“This is going to be an earnings reporting season that is going to be moving us back toward positive earnings growth,” said Bill Northey, chief investment officer at US Bank’s Private Client Reserve in Helena, Montana. “But against that backdrop, we’ve seen a pretty strong jump in the dollar. We’ll have to keep an eye on how strong the U.S. dollar becomes and how U.S. equity markets perform.”

Stocks

The S&P 500 was little changed at 2,141.16 as of 4 p.m. in New York. The Nasdaq Composite Index rose 0.3 percent, buoyed by Microsoft and PayPal Holdings Inc., which surged on its better-than-expected outlook. The Stoxx Europe 600 Index was unchanged.

“Earnings this season have been all over the place, a mixed-to-OK season,” said Otto Waser, chief investment officer of R&A Group Research & Asset Management in Zurich. “Underlying earnings growth is close to zero, so why should the market move higher with interest rates going higher?”

Among stocks moving on corporate news:

  • Microsoft joined an “exclusive club” Friday, moving higher for the 21st century after International Business Machines Corp. and Oracle Corp. achieved the milestone.
  • McDonald’s Corp. rallied after third-quarter revenue beat projections.
  • GE slipped after cutting its 2016 outlook for organic sales growth.
  • SAP SE climbed as it boosted its earnings and sales estimates.
  • Daimler AG fell amid a lower revenue forecast.
  • Ericsson AB slid after posting a loss.

Currencies

Bloomberg’s Dollar Spot Index, which tracks the currency against 10 major peers, rose 0.3 percent. The euro fell to the lowest since March after European Central Bank President Mario Draghi said quantitative easing is unlikely to come to an “abrupt” end, making traders more confident that the monetary stimulus will continue beyond its planned expiry date.

“Anybody who had positioned for the risk that Draghi would signal a hard taper took their chips off that particular table,” said Ned Rumpeltin, the head of European currency strategy at Toronto Dominion Bank in London. “This also put emphasis back on the dollar. And the calendar over the next few weeks look dollar friendly.”

Elsewhere in the world, China’s yuan fell to a six-year low as policy makers signaled tolerance for further weakness amid a surge in the dollar and a tumble in exports. The yen erased losses after an earthquake with a magnitude of 6.6 hit Tottori prefecture in western Japan. The Canadian dollar slid after retail sales unexpectedly dropped in August while inflation accelerated last month at a slower-than-forecast pace.

Commodities

Oil rose after swinging between gains and losses as Russia’s Energy Minister Alexander Novak said production could be adjusted depending on talks with OPEC. President Vladimir Putin previously pledged his support to efforts to limit output.

“After the bulk of declarations from producer countries has come through after the Algiers meeting, there’s not much fundamentally to be driving the market,” said Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas SA in London. The market will “remain in this holding pattern until we have more clarity and possibly get news from the technical meetings that are going to be held in Vienna.”

West Texas Intermediate crude for December delivery rose to $50.85 a barrel on the New York Mercantile Exchange. Brent for December settlement increased 40 cents to end the session at $51.78 a barrel on the London-based ICE Futures Europe exchange. The global benchmark traded at a premium of 93 cents to WTI.

Gasoline futures jumped after Delta Air Lines Inc.’s Trainer refinery in Pennsylvania was said to extend the shutdown of its fluid catalytic cracking unit.

Bonds

Sovereign-bond yield curves around the world flattened this week, resuming a longer-term trend, as Bank of America said it’s skeptical that Fed policies can further steepen the U.S. curve.

The flattening comes a week after Fed Chair Janet Yellen’s remarks indicating a willingness to let the economy run hot caused a gauge of the U.S. yield curve to steepen by the most since March. Bank of America Merrill Lynch says it questions whether the Fed’s intent to raise rates gradually can produce the sort of high-pressure economy that would accelerate inflation and further elevate longer-term yields.

U.S. 30-year bond yields fell two basis points, or 0.02 percentage point, to 2.49 percent according to Bloomberg Bond Trader data. The gap between yields on five- and 30-year notes, a gauge of the yield curve, flattened to about 1.24 percentage points.

Portugal’s 10-year yield dropped to about 3.2 percent on Friday. The nation’s credit rating was retained at investment grade by DBRS Ltd., securing eligibility of the country’s debt for the ECB’s bond purchase program. The decision was announced after the close of European markets.

China’s 10-year bond yield fell two basis points to a record 2.64 percent. Demand for sovereign debt firmed this week as data showed industrial output missed estimates last month and a weakening yuan spurred concern about capital outflows.

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