Bloomberg News

Stocks Gain on Earnings, ECB Rate Bets; Euro, Copper Fall

April 23, 2013

Yen Gains as S&P 500 Futures, Metals Decline

Japan’s currency appreciated 0.6 percent to 98.65 per dollar at 10:30 a.m. in London. Photographer: Yuriko Nakao/Bloomberg

Stocks (SXXP) rallied amid growth in U.S. home sales, better-than-forecast earnings and speculation the European Central Bank will cut interest rates. U.S. equities recovered after briefly erasing gains following a false report of explosions at the White House.

The Standard & Poor’s 500 Index rose 1 percent at 4 p.m. in New York, and the Stoxx Europe 600 Index jumped 2.4 percent, the most since August. Two-year note yields tumbled to record lows in Italy and Ireland while rates on U.S. Treasuries were little changed. The euro erased early gains, falling 0.5 percent to $1.2999. Coffee, silver and copper lost at least 0.9 percent as commodities fell. Apple Inc. (AAPL:US) jumped 4.4 percent in after-market trading after boosting its dividend and share-buyback program.

The S&P 500 briefly erased almost all of its rally following a post on the Associated Press’s Twitter account that said there were explosions at the White House. Stocks recovered as AP said its account had been hacked and there were no explosions. Plans to raise dividends at companies including MetLife Inc., Travelers Cos. and Coach Inc. also helped fuel today’s rally. Apple Inc. is scheduled to report earnings after the close of U.S. markets today.

“The global liquidity story remains in place,” Dan Veru, chief investment officer at Palisade Capital Management LLC, said over the phone. The Fort Lee, New Jersey-based firm manages $3.8 billion. “We’ll have swings in the market because of earnings like today and last week or data reports, but we have this central bank underpinning that will prevent very significant drops from happening. The U.S. economy with all its warts is growing, whereas other economies are not and that makes our stocks attractive.”

Home Sales

A gauge of homebuilders jumped 5.6 percent as Toll Brothers Inc. rallied 9.3 percent and D.R. Horton Inc. surged 5.3 percent. Sales of single-family properties climbed 1.5 percent last month to a 417,000 annual pace from a 411,000 rate in February, Commerce Department figures showed today. The median estimate of 76 economists surveyed by Bloomberg called for March sales to rise to 416,000.

Netflix Inc. jumped 24 percent after acquiring more new subscribers than analysts forecast and beating the average earning-per-share projection by 17 percent. Travelers rose 2.1 percent and Coach Inc. jumped 9.8 percent on better-than- estimated earnings and plans to raise dividends. MetLife Inc. surged 5.5 percent after increasing its dividend for the first time since 2007 as its exit from banking limited oversight from the Federal Reserve.

‘Most Bullish’

“Dividend-paying stocks is the area I’m most bullish on, people need income,” Matt McCormick, who helps oversee $9.1 billion as a money manager at Cincinnati-based Bahl & Gaynor Inc. “This is the most-hated bull market, so if you are nervous about the stock market then at least get paid something while you hold stock.”

Apple rallied 1.9 percent in regular trading, and added 4.4 percent at 4:54 p.m. New York time. After the market closed, the company boosted its dividend and share-buyback program. Apple reported its first profit decline since 2003 and forecast revenue that missed analysts’ estimates amid slowing iPhone sales growth and accelerating competition from Samsung Electronics Co.

Earnings beat analysts’ average estimate at 73 percent of the 131 companies in the S&P 500 that reported so far this season, while 55 percent trailed sales projections, data compiled by Bloomberg show. Per-share profits have grown 3.9 percent on a 1.4 percent increase in revenue.

False Tweet

Bank of America Corp., the second-largest U.S. lender, rose 3 percent after Morgan Stanley upgraded the stock to overweight because expense savings are greater than potential legal costs.

The false report of explosions at the White House wiped out $136 billion from the S&P 500 in about two minutes. The benchmark gauge was up 1 percent at about 1,578 at 1:07 p.m. New York time when a posting on the AP Twitter account said there had been explosions at the White House and President Barack Obama had been injured. The index erased almost the entire gain, falling as low as 1,563.03 by 1:10 p.m.

The S&P 500 recovered from the plunge within three minutes as the news service said its Twitter account had been hacked and there were no explosions. Exxon Mobil Corp., Apple, Johnson & Johnson and Microsoft Corp. briefly lost about 1 percent before recovering.

Treasuries, Dollar

Yields on benchmark 10-year U.S. Treasury notes dropped about six basis points, or 0.06 percentage point, to a low for the year of 1.64 percent immediately after the false tweet as investors sought refuge in the world’s safest assets. The dollar weakened to about 98.60 yen before recovering to 99.27 after the report was discredited.

The 10-year yield rose 1 basis point on the day to 1.71 percent while the dollar was up 0.2 percent to 99.43 yen.

The Chicago Board Options Exchange Volatility Index, or VIX (VIX), surged more than 9 percent before reversing the gain. The VIX, which moves in the opposite direction to the S&P 500 about 80 percent of the time, ended the session 6.3 percent lower at 13.48 and is down 25 percent for the year.

“We saw a huge dip in the futures, immediately starting as headlines went out that the AP Twitter feed was reporting on the White House incident,” Dave Lutz, head of exchange-traded fund trading and strategy at Stifel Nicolaus & Co. in Baltimore, said by e-mail. “That spread quickly but we advised clients there was no confirmation from the White House or any of the other news outlets.”

European Profits

More than 15 shares advanced for every one that declined in the Stoxx 600, which jumped the most since Aug. 3. ARM Holdings Plc, the designer of chips for Apple’s iPhone, rallied 12 percent after reporting sales jumped 29 percent. Cie. Financiere Richemont SA (CFR), the maker of Cartier jewelry, surged 8.3 percent after saying full-year net income increased 30 percent.

Italian 10-year government bonds yields fell below 4 percent for the first time since November 2010 and Portugal’s 10-year yield fell 14 basis points to 5.74 percent, the lowest since October 2010.

Spain’s 10-year rate dropped 21 basis points to 4.28 percent, the least since November 2010. The country’s recession eased in the first quarter, the Bank of Spain said. The extra yield investors demand to hold the securities instead of benchmark German bunds briefly dipped below 300 basis points for the first time since March 2012.

Euro Economy

The euro weakened against 12 of 16 major peers. The 17- nation shared currency slid as much as 0.7 percent to $1.2973, reaching its lowest level since April 8.

Euro-area services and factory output shrank for a 15th month in April as the currency bloc struggled to emerge from a recession. A composite index based on a survey of purchasing managers in both industries held at 46.5, London-based Markit Economics said today, in line with the median of 26 economists’ forecasts in a Bloomberg News survey. A reading below 50 indicates contraction.

“The data is sufficiently weak to up the pressure on the ECB to cut rates in June,” Lena Komileva, managing director and chief economist at G+ Economics Ltd., wrote in an e-mailed note. “With excess capacity growing and business expectations falling, the only question is why the ECB has not cut rates already.”

The S&P GSCI gauge of 24 commodities dropped 0.3 percent. Goldman Sachs Group Inc. cut its “near-term” outlook for commodities and reduced forecasts for oil and coffee amid prospects for weak demand from China to Europe. The bank also exited a bet on lower gold prices.

Commodities Slump

Gold and silver futures slumped. Gold futures for June delivery fell 0.9 percent to settle at $1,408.80 an ounce, ending a three-session rally. The drop was the biggest for a most-active contract since April 15, when the metal plunged 9.3 percent, the most in 33 years. Silver slumped 2.2 percent to $22.866 an ounce.

West Texas Intermediate oil was little changed at $89.18 a barrel, erasing a loss of 1.6 percent. Copper futures for delivery in July declined 1.3 percent to $3.104 a pound. Prices earlier reached $3.0685, the lowest since Oct. 20, 2011, after entering a bear market last week.

The MSCI Emerging Markets Index fell 0.2 percent as rallies in Brazil, South Africa and Turkey were overshadowed by losses in China. The Shanghai Composite Index declined 2.6 percent, the most in three weeks. A report showed Chinese manufacturing slowed more than economists estimated.

To contact the reporters on this story: Stephen Kirkland in London at skirkland@bloomberg.net; Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.net

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


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