Bloomberg News

Stocks, Commodities Rise on Bernanke; Dollar Erases Gain

July 17, 2012

Corn Rises Near Record as Asia Stocks Advance on Fed Speculation

Corn has risen 54 percent since June 15 as further evidence of damage from the worst U.S. drought in a generation stoked concern yields will drop, hurting output in the biggest exporter and lifting global food costs. Photographer: Daniel Acker/Bloomberg

U.S. stocks rose, reversing earlier losses, and commodities climbed as Federal Reserve Chairman Ben S. Bernanke said the central bank is prepared to act to boost growth if labor markets don’t improve. The Dollar Index erased gains while Treasuries retreated.

The Standard & Poor’s 500 Index added 0.7 percent to 1,363.67 at 4 p.m. in New York after retreating as much as 0.6 percent. The Dollar Index, a gauge of the currency against six major peers, fell 0.1 percent after rallying as much as 0.6 percent. Ten-year Treasury yields rose three basis points to 1.50 percent, while a gain in oil helped lead the S&P GSCI Index to a fifth straight advance, its longest rally in 11 weeks, even as 16 of its 24 commodities decreased.

Stocks turned lower in the first hour of trading and the dollar rallied as Bernanke’s prepared testimony to Congress provided no specific plans for boosting growth. Equities recovered as the Fed chairman’s answers to senators’ questions signaled he’s concerned about the economic recovery and doesn’t view inflation as a hindrance to providing more stimulus.

“His downbeat assessment of the economy left the impression that QE3 may be coming soon,” Jeffrey Kleintop, chief market strategist at LPL Financial Corp. in Boston, which oversees $350 billion, said in an e-mail. “QE3” refers to a third round of stimulus measures known as quantitative easing.

Bernanke’s testimony followed data yesterday showing a contraction in June retail sales and a report today that the cost of living in the U.S. was little changed in June, a sign inflation may stay subdued.

Bernanke Testimony

The Fed chairman said policy makers are studying options for further easing that could be deployed. Bernanke, responding to questions during testimony today to the Senate Banking Committee in Washington, said easing tools include further purchases of assets, such as mortgage-backed securities, reducing the interest rate that the Fed pays on reserves banks keep with the central bank, and altering its communications on the outlook for interest rates.

Indexes of health-care, commodity, telephone and consumer- discretionary stocks rallied at least 1 percent to lead gains in all 10 of the main industries in the S&P 500.

Walt Disney Co. rallied 3.1 percent to a record $49.35, leading gains in the Dow Jones Industrial Average (INDU), after Bank of America Corp. raised the world’s largest entertainment company to a buy. Coca-Cola Co. advanced 1.6 percent after posting earnings that topped projections. Mattel Inc. jumped 9.7 percent after reporting second-quarter profit that exceeded the average analyst estimate.

Earnings Season

Goldman Sachs Group Inc. (GS:US) rose 0.3 percent, trimming a rally of as much as 2.9 percent. The bank reported second-quarter profit that exceeded analysts’ estimates and said it is selling its hedge-fund administration unit to State Street Corp. State Street tumbled 6.4 percent for the biggest drop in the S&P 500.

Earnings beat estimates at 32 of the 45 companies in the S&P 500 that have reported quarterly results so far, data compiled by Bloomberg showed. Profits are down 3 percent for the group and earnings (SPX) are projected to decrease 2.1 percent for the entire S&P 500.

The S&P 500 slipped in seven of the previous eight sessions and is down almost 4 percent from a four-year high in April as economic data trailed estimates and investors braced for what is projected to be the first decline in quarterly profits since 2009. The International Monetary Fund cut its 2013 forecast for global economic growth yesterday to 3.9 percent from 4.1 percent as Europe’s debt crisis prolongs Spain’s recession and slows expansions in emerging markets.

Economy Surprises

The Citigroup Economic Surprise Index for the U.S., which measures how much data from the past three months is beating or missing the median estimates in Bloomberg surveys, is at minus 62.3, near the almost 11-month low of minus 64.9 reached last week. The gauge peaked at 91.9 in January.

Oil rose 0.9 percent to $89.22 a barrel, a seven week high, amid speculation that inventories fell and as a report showed U.S. industrial production increased in June.

The dollar weakened against 15 of 16 major peers, losing at least 0.6 percent versus the Brazilian real, Australian dollar and Swedish krona.

The Stoxx Europe 600 Index of stocks in the region slipped 0.3 percent. Alcatel-Lucent SA plunged 20 percent to a three- year low after France’s largest telecommunications-equipment supplier said it expects to miss a 2012 profitability target and posted a second-quarter loss. Petroleum Geo-Services ASA, the world’s third-largest surveyor of oil and gas fields, surged 9.3 percent in Oslo after raising its full-year forecast.

Yield Watch

German two-year note yields increased to minus 0.047 percent after earlier falling to a record low of minus 0.061 percent. Spain’s two-year notes slipped, pushing the yield eight basis points higher to 4.73 percent after the nation auctioned 3.56 billion euros ($4.38 billion) of bills. The rate on five- year U.S. debt increased two basis points to 0.62 percent, after reaching a record-low 0.577 percent yesterday.

The MSCI Emerging Markets Index added 0.7 percent for a third day of gains. The Shanghai Composite Index rose 0.6 percent from its lowest close since March 2009 after the government said it will boost railway infrastructure investment and forecast economic growth will pick up in the second half.

The Hang Seng China Enterprises Index of Chinese stocks listed in Hong Kong jumped 1.8 percent. Benchmark indexes gained in South Korea and Russia.

To contact the reporters on this story: Inyoung Hwang in New York at ihwang7@bloomberg.net; Julia Leite in New York at jleite3@bloomberg.net

To contact the editor responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net


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