U.S. stocks advanced with the dollar, extending gains to a second day as the Federal Reserve signaled caution on rates even as growth shows signs of accelerating. European equities rallied on speculation the region’s central bank will boost stimulus.
The Standard & Poor’s 500 Index jumped 0.8% at 9:32 a.m. in New York, following the biggest gain in three weeks. The MSCI All-Country World Index climbed 1.1% and the Stoxx Europe 600 rallied 1.8%. The euro reached its lowest level against the dollar since 2005 and Treasuries fell with gold for a second day. Oil slipped 0.5% in New York, after rebounding from the lowest price since April 2009.
Relief that Fed minutes signaled no change in interest-rate policy and optimism on employment growth helped break a five-day slide in the American equity benchmark. Jobless claims fell last week, data showed today, before tomorrow’s monthly payrolls report. Data in Europe indicated producer prices slid more than analysts anticipated and German factory orders fell more than forecast in November, bolstering the case for expanded measures to shore up the economy.
“The New Year hangover has finally cleared,” said Justin Urquhart Stewart, who helps oversee about $10 billion at Seven Investment Management LLP in London. “Yesterday’s turnaround broke the negative line of falls and has given a chance to push back against poor sentiment. There should be a positive fillip to the market.”
Equities Rebound
The S&P 500 rose 1.2% yesterday, the biggest gain in three weeks after the worst start to a year since 2008. The benchmark index tumbled 4.2% over the previous five days as crude oil plunged below $48 a barrel for the first time since 2009.
Oil held steady today as investors weighed whether the sell-off was excessive, amid speculation that U.S. production growth may slow. Forecasters from Bank of America Corp. to UBS AG say there are no clear signs of an end to the rout that’s sent oil prices down more than 50% since June.
West Texas Intermediate crude fell to $48.33 a barrel in New York. Brent slid 0.5% to $50.90 in London.
Most Fed officials agreed their new policy guidance means they are unlikely to raise interest rates before late April and a number expressed concern inflation could remain too low. The minutes also showed some Fed officials are concerned about risks posed by overseas economies. Policy actions by foreign central banks may help, the minutes said.
Those sentiments were echoed in comments yesterday by Fed Bank of Chicago President Charles Evans.
Rate Catastrophe
“I don’t think we should be in a hurry to increase interest rates,” Evans said during a discussion with Lars Peter Hansen, a Nobel prize-winning economist at the University of Chicago. Later in the presentation, Evans said such a move to tighten too soon would be a “catastrophe.”
The Bloomberg Dollar Spot Index was set for its highest close on record as U.S. jobless claims decreased by 4,000 to 294,000 in the week ended Jan. 3, adding to signs of an improving labor market. Europe’s common currency weakened for a fifth day, the longest stretch since May.
The euro slipped 0.4% to $1.17883 and reached $1.1754, the weakest level since December 2005. It fell 0.2% to ¥140.89. The dollar appreciated 0.3% to ¥119.60, extending yesterday’s 0.7% advance.
The factory data from Germany, which narrowly avoided a recession in the middle of 2014, added to evidence of Europe’s economic slump and strengthened the case for more asset purchases by the European Central Bank, which next decides on interest rates on Jan. 22.
Sentiment Boost
“Market participants expect quantitative easing from the ECB,” said Christoph Riniker, head of strategy research at Julius Baer Group Ltd. in Zurich. “After the ECB meeting and Greek elections, there is certainly some uncertainty that will leave the market. QE equals sentiment boost, which equals help for peripherals.”
The Stoxx 600 headed for the biggest gain in three weeks. It snapped a three-day drop yesterday before a Bloomberg News report that lawmakers in Chancellor Angela Merkel’s coalition said Germany is leaving the door open to debt-relief talks with Greece’s next government.
Greek bonds jumped today, with three-year note yields tumbling 131 basis points to 14.30%.
The Stoxx 600 is still down 3.4% from a Dec. 5 high as energy shares slumped and concern grew over Greece as Prime Minister Antonis Samaras said this month’s election could lead to its exit from the euro area.
Treasury 10-year note yields rose four basis points, or 0.04 percentage point, to 2.01%.
Emerging Equities
Stocks in developing nations gained for a second day, with the MSCI Emerging Markets Index climbing 1.4 percent, the most on a closing basis in three weeks.
Russian stocks and the ruble advanced as trading resumed following a holiday yesterday. The ruble strengthened 3.1 percent, rebounding from the lowest close in three weeks, and the Micex index climbed 5.1 percent.
Shares in the Middle East rose for a second day, trimming this week’s losses. The Dubai Financial Market Index jumped 2.1 percent, leaving it 2.6 percent lower in the five-day period. Qatar’s benchmark gauge climbed 3.4 percent, Abu Dhabi’s ADX General Index added 1.2 percent and Saudi Arabia’s Tadawul All Share Index increased 1.9 percent.
Benchmark gauges in South Korea, Taiwan, India, Thailand, Egypt, Poland, Hungary and the Czech Republic advanced more than 1 percent.
Chinese stocks retreated as forecasts for declines by Bank of America Corp. and HSBC Holdings Plc fueled concern that the benchmark index’s rally to a five-year was overdone. The Shanghai Composite Index fell 2.4 percent to close at 3,293.46 at the close, the biggest loss since Dec. 23. HSBC predicts the gauge will end the year at 3,100, while Bank of America targets 3,000 for the measure.
U.S. natural gas declined for a second day, falling 1.5 percent to $2.827 per million British thermal units. Temperatures may be above normal in most of the lower 48 states from Jan. 17 to 21, according to forecasts from Andover, Massachusetts-based WSI Corp.
Gold declined 0.1 percent to $1,210.19 an ounce. Silver slid by 0.4 percent.