Stocks gain with commodities as China pessimism eases

Stocks gain with commodities as China pessimism eases

Stocks gain with commodities as China pessimism eases Lucy Meakin and Jeremy Herron

Stocks rallied around the world, commodities jumped and credit markets strengthened as investors judged the global rout had gone too far.

Equities climbed from the U.S. to Europe to emerging markets as data Tuesday showed Chinese growth was in line with government targets, exceeding the most pessimistic of forecasts. Stocks pared advances as a gain in crude faded, leaving oil below $30 a barrel. The cost of insuring European investment- grade corporate debt halted its longest run of increases since 2012. Copper led a metals rally, while the yen weakened the most in a month and Treasuries fell.

“The slowdown in China is nowhere near as bad as markets feared, plus officials have the ability to intervene and stimulate growth,” said Justin Urquhart Stewart, London-based co-founder of Seven Investment Management, which oversees about $13 billion of assets. “It looks like the hangover from this awful start to the year is finally clearing.”

The renewed optimism boosted the MSCI All-Country World Index from its lowest level since July 2013 and bolstered commodity prices. While official figures showed Chinese growth slowed at the end of last year, the data weren’t as dire as some investors had predicted and left the door open for authorities to do more to support the nation’s transition to a consumer-led expansion. 

Even with the rebound, market sentiment may remain fragile, with a Bank of America Merrill Lynch gauge of volatility expectations for equities, bonds, currencies and commodities close to its highest level since October.

Stocks

The S&P 500 rose 1.1 percent at 9:31 a.m. in New York, as U.S. markets reopened after a holiday weekend. The index slid on Friday to the lowest level since Aug. 25, capping an 8 percent rout over two weeks in its worst start to a year on record.

Corporate earnings helped boost sentiment, as Bank of America Corp. rose after saying profit climbed on gains in fees and declines in expenses. Morgan Stanley advanced after reporting quarterly results that exceeded estimates. Apple Inc. increased after Goldman Sachs Group Inc. recommended purchasing the shares. Tiffany & Co. dropped after cutting its profit forecast.

European stocks snapped a three-day decline, rising for the first time since they entered a bear market last week. All 19 industry groups climbed, with commodity producers and energy companies leading gains.

A gauge of miners rose 4.7 percent, heading for its biggest advance since Dec. 23, as Glencore Plc and Anglo American Plc rallied more than 9 percent. Rio Tinto Group climbed 4.1 percent after saying it will slow the pace of its supply expansion amid a market glut. Seadrill Ltd. was one of the biggest gainers among oil-and-gas companies, rising 5.4 percent, after it reached its lowest level since 2009 at the end of last week.

Emerging Markets

The MSCI Emerging Markets Index rose for the first time in four days, gaining 1.7 percent, the most in three months. Benchmarks in Russia and the Middle East climbed more than 2 percent.

Growth in China’s industrial production, retail sales and fixed-asset investment all slowed at the end of the year, while gross domestic product rose 6.8 percent in the fourth quarter from a year earlier. The full-year expansion of 6.9 percent, the least since 1990, was in line with the government’s target of about 7 percent, and higher than forecasts for as low as 6.5 percent in a Bloomberg survey of economists.

The Shanghai Composite Index jumped rallied 3.2 percent, the most since November, with Reorient Financial Markets Ltd. saying government-led funds may have entered to bolster the market. The Hang Seng China Enterprises Index of mainland stocks listed in Hong Kong jumped 3 percent, rebounding from a 2011 low. 

Russia’s Micex climbed 2.5 percent as Brent crude rebounded. Gulf stocks rose, with the Bloomberg GCC 200 Index climbing 2.8 percent, the most since August.

Currencies

The yen dropped 0.5 percent to 117.88 per dollar as investors unwound demand for the currency as a haven from turmoil in China. It has strengthened 1.9 percent this month.

South Africa’s rand led gains in the currencies of commodity producing nations, rising for first time in three days. It strengthened 1.3 percent to 16.65 per dollar. Australia’s currency gained 1 percent and Russia’s ruble advanced 1 percent.

The pound declined to the lowest level since 2009 after Bank of England Governor Mark Carney signaled that an increase in interest rates is still some way off, citing slowing growth and the outlook for inflation. Sterling dropped as low as $1.4207.

Turkey’s lira erased an advance after the nation’s central bank kept its three main interest rates on hold, noting the higher market volatility so far this year in a statement that made no reference of a promised shift to a simplified monetary policy.

The Hong Kong dollar slipped 0.1 percent to 7.8065 per dollar, the weakest since August 2011. The currency was near the mid-point of the HK$7.75-HK$7.85 trading range that’s existed for more than a decade.

Commodities
The Bloomberg Commodity Index rose 1.1 percent, after closing at the lowest level since at least 1991 on Friday. Brent crude climbed 3.2 percent to $29.47 a barrel, paring its decline this year to 21 percent.

The International Energy Agency, adviser to 28 advanced economies, said Tuesday that global oil markets could “drown in oversupply,” sending prices even lower as demand growth slows and Iran revives exports.

Copper gained 1.6 percent as stock markets jumped in China, the world’s biggest metals consumer. Former Federal Reserve Chair Ben Bernanke said China was making “good progress” with financial reforms.

Corn climbed to the highest in four weeks as drought threatened to hurt African crops.

Bonds

The U.S. 10-year note yield climbed three basis points to 2.06 percent amid speculation yields have gotten too low given the outlook for resilient U.S. growth. Yields on similar maturity German bunds rose two basis points to 0.56 percent.

“There’s an unwinding of the flight to quality,” that’s pushing Treasuries down, said Kazuaki Oh’E, head of fixed income at CIBC World Markets Japan Inc. in Tokyo. “I’d like to sell at this level. The U.S. economy should be basically OK.”

The Markit iTraxx Europe Index of credit-default swaps on investment-grade companies declined for the first time in 10 days. The index dropped three basis points to 95 basis points. The Markit iTraxx Europe Crossover Index of default swaps on sub-investment grade corporate debt fell 13 basis points to 374 basis points.


--With assistance from Jonathan Burgos, Sofia Horta e Costa, Alan Soughley, Neil Denslow, Amanda Jordan, Stephen Kirkland, Anna Kitanaka and Kyoungwha Kim.
Bloomberg