Bloomberg News

U.S. Stocks Advance on Jobless Claims While Dollar Strengthens

July 18, 2013

U.S. Fed Chairman Ben S. Bernanke

Ben S. Bernanke, chairman of the U.S. Federal Reserve, said in prepared testimony to the House Financial Services Committee yesterday that the Fed’s asset purchases “are by no means on a preset course” and could even be expanded should economic conditions warrant. Photographer: Pete Marovich/Bloomberg

U.S. stocks rose, sending the Standard & Poor’s 500 Index to an intraday record, amid better-than-forecast earnings and data on jobless claims and Philadelphia-area manufacturing that bolstered optimism in the economy. Treasuries retreated while the dollar rose.

The S&P 500 added 0.5 percent to 1,689.38. at 4 p.m. in New York. The Bloomberg Dollar Index added 0.2 percent as the U.S. currency strengthened against 12 of 16 major peers. The yen weakened versus 15 amid bets Group of 20 finance officials will endorse Japan’s monetary easing. Canada’s dollar rallied on a jump in wholesale sales. Ten-year Treasury yields added five basis points to 2.54 percent after declining for three straight days. Oil rose to an almost 16-month high, climbing 1.5 percent to $108.04 a barrel.

The S&P 500 opened higher after government data showed jobless claims declined by 24,000 to 334,000 last week, the fewest since early May and less than the median economist estimate. Stocks extended gains as the Federal Reserve Bank of Philadelphia’s general economic index surged to a two-year high. Russian Deputy Finance Minister Sergei Storchak said the G-20, which meets this weekend, probably won’t call for a tapering of stimulus in nations including Japan.

“Jobless claims were a little bit better than expected which gives some comfort,” Richard Sichel, who oversees about $1.9 billion as chief investment officer at Philadelphia Trust Co., said by phone. “And then you have earnings rolling full steam now so it becomes a stock-by-stock market.”

U.S. Movers

Among U.S. stocks moving on earnings news today, International Business Machines Corp. (IBM:US) climbed 1.8 percent as the biggest computer-services company raised its annual forecast. UnitedHealth Group Inc. jumped 6.5 percent, the most since 2011 on a closing basis, to a record after profit beat estimates as a Brazilian acquisition and gains in U.S. health-insurance plans swelled enrollment by 25 percent. Intel Corp. (INTC:US) slid 3.8 percent after the largest semiconductor maker released sales forecasts yesterday that fell short of some analysts’ estimates.

Morgan Stanley rose 4.4 percent after profit topped estimates. Of the 82 index members that have released earnings so far in the reporting season, 73 percent have topped analysts’ profit projections, and 52 percent have beaten on sales, according to data compiled by Bloomberg. Some 32 companies in the S&P 500 are reporting results today.

Fed stimulus and better-than-forecast corporate earnings have fueled a surge in stocks worldwide, with the S&P 500 jumping about 150 percent from its March 2009 low. Today’s rally pushed the index’s valuation to 15.3 times estimated 2013 earnings, the highest since April 2010.

Fund Flows

Equity exchange-traded funds and mutual funds are attracting money at the fastest rate since January. Investors put about $27 billion to equity ETFs so far this month after $19.1 million of withdrawals in June, according to Bloomberg data tracking about 1,500 securities. Mutual funds that invest in U.S. shares had $4.55 billion of inflows during the week through July 10, ending seven consecutive weeks of withdrawals, according to data from the Investment Company Institute released yesterday.

Fed Chairman Ben S. Bernanke spoke to lawmakers in the Senate today as investors assess the outlook for the Fed’s $85 billion-a-month bond-buying program, which capped increases in borrowing costs and stoked a 33 percent jump in global equities in the past three years. Stocks rallied yesterday as Bernanke told a House committee that there was no preset course for the central bank’s asset purchases, tempering speculation that the central bank would begin to taper stimulus as early as September.

Fed Volatility

Speculation about the Fed’s plans for quantitative easing have whipsawed markets in recent months, leading to a 5.8 percent dip and recovery in the S&P 500 since May, when Bernanke first told Congress that reducing bond purchases was possible this year. Ten-year Treasury yields jumped more than a full percentage point from 1.63 percent at the beginning of May to 2.74 percent on July 5.

Bernanke told senators that one reason for the recent rise in long-term interest rates is the unwinding of leveraged and “excessively risky” investing.

“It’s probably a good thing to have that happen although the tightening that’s associated with that is unwelcome,” he said in response to a question from the Senate Banking Committee today in Washington.

The U.S. sold 10-year Treasury Inflation Protected Securities at a positive yield for the first time since November 2011 with investors unwilling to pay a premium to guard against the threat of rising consumer prices.

‘Very Cheap’

The $15 billion in TIPS were auctioned at what’s known as a high yield of 0.384 percent, compared with a forecast of 0.395 percent, the average estimate in a survey of seven of the Federal Reserve’s 21 primary dealers that are required to bid on U.S. debt sales. The last nine sales of the securities were at negative yields.

“TIPS got to very cheap levels relative to fundamentals and are now starting to offer some value” said Michael Pond, head of global inflation-linked research at Barclays PLC, one of 21 primary dealers that are obligated to bid at U.S. government debt auctions. “The Fed has brought the dual back to the dual mandate by increasing communication around inflation, which should bolster the idea that the Fed is serious about pushing inflation up.”

Commodity Leaders

West Texas Intermediate discount to Brent narrowed to less than $1 for the first time since 2010 as inventories decreased at Cushing, Oklahoma, a major U.S. hub.

A 5 percent jump in natural gas and gains of more than 1 percent in cotton, oil and cocoa led the S&P GSCI Index of 24 commodities to a 0.7 percent gain and its highest level since April. Natural gas futures reached an almost one-month high after U.S. stockpiles climbed by less than forecast last week.

Gold futures advanced for the third time in four days on signs of increasing physical purchases. Tanaka Kikinzoku Kogyo K.K., Japan’s biggest gold retailer, said today its sales rose threefold in the second quarter from the previous three months, as lower prices attracted consumers. There are signs of firming demand from China to Japan, Barclays wrote in a July 15 report. Through yesterday, prices rebounded 8.4 percent since reaching a 34-month low on June 28 as the decline spurred more buying of coins, bars and jewelry.

The yen’s drop extended yesterday’s 0.5 percent decline versus its U.S. counterpart. The Bloomberg Dollar Index, a gauge of the greenback against 10 peers, climbed for a second day.

Yen Prediction

“We see the yen weakening further,” said Kengo Suzuki, the chief currency strategist at Mizuho Securities Co. in Tokyo, a unit of Japan’s third-biggest bank by market value. “Japan’s monetary policy is tilted toward further accommodation.”

The Aussie dollar slid 0.7 percent to 91.71 U.S. cents, while the country’s 10-year yield sank as much as nine basis points to 3.65 percent, a level not seen since June 20. Australia’s business confidence index for the next three months dropped to minus 1 in the second quarter from 2 in the previous three-month period, National Australia Bank Ltd. said in a survey released today.

The Canadian dollar rose against all 16 of its most-traded peers, gaining momentum from signs a sluggish economic recovery is gaining momentum. The loonie erased a loss against its U.S. counterpart after Canadian wholesale sales rose at the fastest pace in more than two years in May, reaching a record on sales of fertilizer and food.

Corporate Bonds

The cost of insuring against losses on corporate bonds dropped. The Markit iTraxx Europe Index of credit-default swaps on 125 investment-grade companies declined almost 4 basis point to 101.7, the lowest since May.

Four shares advanced for each that declined in the Stoxx 600. Ericsson fell 4.8 percent after second-quarter sales missed estimates. Akzo Nobel NV slid 8 percent, the most since 2008, as Europe’s largest paintmaker reported declining earnings and sales.

Publicis Groupe SA (PUB), the world’s third-biggest advertising company, climbed 3.4 percent in Paris trading as first-half profit rose 15 percent. WPP Plc, the biggest advertising company, advanced 3.6 percent.

The volume of shares changing hands in Stoxx 600 companies was 4.5 percent less than the 30-day average, according to data compiled by Bloomberg.

Emerging Markets

Russia’s Micex index (INDEXCF) sank 1.1 percent, the most in four weeks, after a court sentenced Alexey Navalny, an opposition leader and critic of President Vladimir Putin, to five years in prison. The benchmark Micex Index snapped a five-day winning streak.

The MSCI Emerging Markets Index fell 0.3 percent for the first drop in eight days, snapping the longest winning streak since January. Benchmark indexes in South Korea and Taiwan dropped at least 0.6 percent, while India’s Sensex index advanced 0.9 percent.

Argentine bonds rallied the most in four months on speculation the International Monetary Fund is considering supporting Argentina in its request to have the U.S. Supreme Court review its case with defaulted bondholders. IMF Managing Director Christine Lagarde will ask the fund’s executive board to submit a friend-of-the-court brief in support of Argentina’s June 24 petition to the Supreme Court to take a case involving holdout creditors from the nation’s $95 billion default in 2001, two people familiar with the request said.

The Shanghai Composite Index slid 1.1 percent and has lost 2.1 percent in two days. The IMF said yesterday China’s economic growth may trail forecasts.

To contact the reporters on this story: Michael P. Regan in New York at mregan12@bloomberg.net; Alex Barinka in New York at abarinka2@bloomberg.net

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


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