Global stocks rallied the most this year, the euro strengthened and commodities jumped on speculation policy makers will take steps to revive the slowing economy. Australia’s currency surged after a report showed the gross domestic product grew at twice the projected rate.
The MSCI All-Country World Index and the Standard & Poor’s 500 Index each added 2.3 percent at 4 p.m. New York time, the biggest gains for both since Dec. 20. The euro strengthened 0.9 percent to $1.2568 and jumped 1.6 percent versus the yen. The Australian dollar rose 1.8 percent against the U.S. currency. Germany’s 10-year bund yield increased 13 basis points and the rate on U.S. Treasury note added eight points as investors pursued riskier assets. The S&P GSCI gauge of commodities gained 1.3 percent as oil rallied.
Global equities erased their losses since last week’s report showing the weakest U.S. jobs growth in a year. European Central Bank President Mario Draghi said officials stand ready to act as the euro region’s growth outlook worsens. Federal Reserve Bank of Atlanta President Dennis Lockhart said extending Operation Twist, the central bank’s stimulus program that lengthen maturities of debt on its balance sheet, is an “option on the table.”
“There’s always hope that some magic tool would be found,” Ron Florance, managing director of investment strategy for Wells Fargo Private Bank, said in a telephone interview from Phoenix. His firm manages $169 billion. “There’s no sense of any economic recovery on the near-term horizon for Europe. Things could get worse. Investors tend to be optimists. So they are always hoping for something better.”
Finance ministers and central bank governors from the world’s leading economies agreed to coordinate their response to the financial turmoil on a conference call yesterday. Officials said they would work together to help Spain and Greece put their public finances on a sustainable footing.
Warren Buffett, the billionaire chairman of Berkshire Hathaway Inc., said he expects the U.S. economy to avoid another recession as long as Europe can contain its debt crisis. There won’t be a recession “unless events in Europe develop in some way that spills over here big-time,” Buffett said yesterday at the Economic Club of Washington.
The Fed said today that the U.S. economy maintained a moderate pace of growth as factory output rose and the real- estate market improved. Its Beige Book survey based on reports from its 12 district banks used similar language to the previous report in April.
Bank of America Corp., United Technologies Corp., Caterpillar Inc. (CAT:US) and Cisco Systems Inc. helped lead gains in all 30 stocks in the Dow Jones Industrial Average, which surged 286.84 points to 12,414.79. Home Depot Inc. (HD:US), the largest U.S. home-improvement retailer, climbed 3.4 percent after increasing its stock repurchase plan.
Chesapeake Energy Corp. (CHK:US) rallied 7.1 percent as the company was said to be in advanced talks to sell pipelines to Global Infrastructure Partners for more than $4 billion (CHK:US). Monsanto Co. advanced 3 percent after the largest seed company said it will repurchase as much as $1 billion of shares as rising profit boosts the company’s cash hoard to a record.
The S&P 500 fell as much as 9.9 percent from this year’s peak in April through last week amid concern about a global slowdown. The gauge slid 2.5 percent on June 1 after Labor Department data showed employers added 69,000 jobs in May, trailing the median economist estimate for a gain of 150,000. The index started the week trading at 12.9 times reported earnings, the cheapest valuation in six months, according to data compiled by Bloomberg.
The 10-year Treasury yield climbed for a third day, reaching a one-week high of 1.66 percent. The 30-year U.S. bond’s yield added nine basis points to 2.73 percent. The Dollar Index, a gauge of the currency against six major peers, slid 0.8 percent for its biggest drop in five months.
Ten- and 30-year yields reached record lows of 1.4387 percent and 2.5089 percent on June 1 after the jobs report. The yields reached their 2012 highs in March, 3.49 percent for long bonds and 2.40 percent for 10-years.
Sugar, cotton and silver rallied at least 3.2 percent to lead gains in 20 of 24 commodities tracked by the S&P GSCI.
Crude oil rose 0.9 percent to $85.02 a barrel in New York. An indicator known as the relative strength index shows the fuel may be poised for a rebound. Its 14-day RSI has been below 30 since May 11, the longest stretch in 26 years. The figure, which identifies possible turning points in markets, dropped to 16.3 on June 1, the lowest level since February 1986.
The Stoxx Europe 600 Index (SXXP) surged 2.3 percent, the most in since Nov. 30, as the U.K. market reopened after a two-day public holiday. HSBC Holdings Plc added 4.7 percent as Sanford C. Bernstein & Co. said in a note that impairments are falling at Britain’s high-street banks. Barclays Plc (BARC) jumped 8.2 percent, its biggest gain since January, Lloyds Banking Group Plc increased 5.2 percent and Royal Bank of Scotland Group Plc rose 6.7 percent.
Officials in Germany and the European Union are exploring ways to rescue Spanish banks, Reuters reported, citing unnamed sources familiar with the discussions. Lawyers are examining treaties to see if Spain could get money from rescue finds without being subjected to a full economic-adjustment plan, the news service reported.
The 17-nation euro rose to a one-week high against the dollar amid speculation the world’s leading economies will collaborate on a response to Europe’s crisis, boosting demand for the region’s assets. The euro briefly pared its gain versus the American currency as Draghi said there were “increased downside risks” to the economy.
The euro had fallen 3.8 percent over the past six months, the worst performance among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar gained 4.1 percent, and the yen advanced 2.2 percent.
Reports today showed German industrial output fell more than economists forecast in April and Spanish production had the biggest drop in more than two years, adding to signs of a deepening economic slump across the euro area.
German production declined 2.2 percent from March, the Economy Ministry in Berlin said today. Economists had forecast a drop of 1 percent, according to the median estimates. In Spain, output fell 8.3 percent from a year earlier, when adjusted for work days, a separate report showed.
The yield on Germany’s five-year note rose 11 basis points to 0.48 percent today as the government sold 3.98 billion euros ($5 billion) of April 2017 securities. Portugal’s two-year yield dropped 64 basis points to 10.32 percent as borrowing costs declined at the sale of 1 billion euros of 12-month bills.
Australia’s economic report sent the local currency, bond yields and stocks higher and prompted traders to pare bets on a half-point interest-rate cut next month. First-quarter gross domestic product advanced 1.3 percent from the previous three months, when it rose a revised 0.6 percent, a Bureau of Statistics report released in Sydney today showed.
Australia’s 10-year bond yields jumped six basis points to 3 percent, and the S&P/ASX 200 Index of stocks reversed declines and gained 0.3 percent at the close of trading.
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