U.S. shares rallied for a second day following the biggest jump since January and gold plunged to a three-month low as lawmakers discussed a potential agreement to extend the nation’s borrowing authority. Treasuries erased early gains while the yen weakened and oil slid.
The Standard & Poor’s 500 Index added 0.6 percent to 1,703.20 at 4 p.m. in New York after jumping 2.2 percent yesterday. The Stoxx 600 Europe Index gained 0.4 percent and the benchmark index for emerging markets extended its two-day advance to 1.9 percent. U.S. 10-year Treasury yields climbed one basis point at 2.69 percent, reversing a four basis-point drop, while the dollar and yen weakened against major peers. Corn slid to a three-year low on concern demand may shrink if the government scales back the biofuel mandate. Gold futures fell 2.2 percent to $1,268.20 an ounce, while oil lost 1 percent on forecasts for rising North American production.
The S&P 500 erased losses since the partial government shutdown began on Oct. 1 and added 0.8 percent for the week. Democrats and Republicans were moving toward an agreement to extend the nation’s borrowing authority before an Oct. 17 deadline even as they remained at odds over terms for reopening the government. JPMorgan Chase & Co. and Wells Fargo & Co. began the earnings season for banks. Confidence among U.S. consumers fell to a nine-month low amid the budget impasse.
“We continue to look at the overall situation in Washington and see how that’s evolving,” Cam Albright, director of asset allocation at Wilmington Trust Investment Advisors, said in a phone interview from Wilmington. His firm oversees about $20 billion. “I suspect we may still be at least several days away from getting any sort of final resolution and it may create some market volatility as we go forward.”
The Chicago Board Options Exchange Volatility Index, the benchmark gauge of options prices known as the VIX, slipped 4.6 percent to 15.72 today, extending its three-day retreat to 23 percent for its biggest decline over similar time frames since April.
The Thomson Reuters/University of Michigan preliminary consumer sentiment index of decreased to 75.2 this month from 77.5 in September. Economists in a Bloomberg survey projected a drop to 75.3, according to the median estimate.
Gauges of energy, technology and consumer stocks rose at least 0.8 percent today to lead an advance in all 10 of the main industry groups in the S&P 500.
Johnson & Johnson advanced 1.9 percent as Goldman Sachs Group Inc. boosted the stock’s rating. An index of homebuilders climbed 2 percent amid analyst upgrades. Cognizant Technology Solutions Corp. climbed 5.5 percent after Infosys Ltd. raised its sales forecast. Gap Inc. dropped 6.7 percent, its worst loss of the year, after September sales missed analyst estimates.
JPMorgan closed down 1 cent after reporting its first quarterly loss under Chief Executive Jamie Dimon amid a $7.2 billion charge to cover the cost of litigation and regulatory probes. Earnings adjusted for one-time items were $1.42 a share, compared a $1.30 average of 20 analysts surveyed by Bloomberg. Wells Fargo & Co. also closed little changed after its earnings (JPM:US) results showed weakness in new mortgage lending.
With few government economic reports available during the shutdown, investors are watching third-quarter corporate earnings. Profits for companies in the S&P 500 probably increased 1.4 percent during the three months while sales rose 2 percent, according to analysts’ estimates compiled by Bloomberg.
House Republicans offered a plan to raise the U.S. debt limit and end a partial government shutdown that would require the president to accept policy conditions attached to a spending measure, said two congressional aides.
Republicans sent a list of policy options to the White House following a meeting yesterday, said the aides, who spoke on condition of anonymity. President Barack Obama has insisted that he won’t accept conditions for ending the shutdown, which is in its 11th day.
“The debt-ceiling debate will be resolved without major accidents,” Nicola Mai, senior vice president and sovereign credit analyst at Pacific Investment Management Co., the world’s biggest manager of bond mutual funds, said in an interview with Francine Lacqua on Bloomberg Television’s “The Pulse.” “Politicians realize there are significant consequences to this and that’s why last night we saw some opening on the part of Republicans and Democrats in debt negotiations.”
The Stoxx 600 extended its two-day rally to 2.1 percent, its biggest gain since July. The index rose 0.6 percent this week.
Royal Mail Group Ltd., the U.K.’s 360-year-old postal service, jumped 38 percent on the first day of trading after its initial public offering. Swedish Match AB sank 4.2 percent as the maker of Longhorn snuff said full-year earnings at its U.S. cigars and chewing tobacco unit will decline.
The MSCI Emerging Markets Index gained 1 percent, extending this week’s advance to 1.6 percent. India’s S&P BSE Sensex jumped 1.3 percent after Infosys Ltd. raised its annual sales forecast. The Shanghai Composite Index added 1.7 percent as the Shanghai Securities News reported the city may reform state-owned enterprises. Benchmark gauges in Turkey, South Korea and the Philippines advanced at least 0.7 percent.
The yen declined 0.6 percent per euro and slipped 0.4 percent to 98.50 per dollar as it depreciated against all 16 major peers. Europe’s 17-nation common currency advanced 0.2 percent to $1.3550 as the U.S. dollar weakened against 12 of 16 major peers.
The rate on $93 billion in Treasury bills due Oct. 24 was at 0.26 percent, according to Bloomberg Bond Trader data, after climbing as high as 0.52 percent yesterday. It was zero as recently as Sept. 19. The rate on bills due Nov. 29 was at 0.17 percent, the highest since the security was issued.
“The fact that it’s far from a done deal and it seems that we’re only talking about a six-week delay means certainly for the bond markets it doesn’t amount to a great deal of relief,” said John Wraith, a fixed-income strategist at Bank of America Corp. in London. “You’ve seen a small decline in the distress in late October Treasury bills but it has just spilled over into those maturing in November and December.”
Credit-default swaps on U.S. Treasuries retreated for a second day after reaching a seven-month high. The contracts declined 0.8 basis points to 34.2 basis points, according to data compiled by Bloomberg. That compares with 21 basis points last month and 65 basis points in 2011, the last time Congress played brinkmanship over the nation’s debt limit.
Swaps on Treasuries were the ninth most traded of 1,000 entities tracked by the Depository Trust & Clearing Corp. in the week through Oct. 4, up from 147th two weeks before, with 87 trades covering a gross $2.3 billion of debt.
There are now 953 contracts covering a net $3.6 billion of Treasuries outstanding, the most in a year and up from a more than two-year low of $3.1 billion on Sept. 20.
Italy’s two-year note slipped six basis points to 1.59 percent as the nation sold 6 billion euros ($8.1 billion) of securities due between 2016 and 2028 today, its maximum target. Spain’s 10-year yield dropped five basis points to 4.29 percent. German bunds of similar maturity were little changed, leaving the yield at 1.86 percent.
Corn fell to the lowest level since August 2010, losing 1.1 percent to $4.3325 a bushel, as the U.S. Environmental Protection Agency is considering scaling back requirements on the use of ethanol next year. Corn is used to make ethanol in the U.S. Corn has already dropped 38 percent this year on a record U.S. harvest, heading for the biggest annual decline since at least 1960.
West Texas Intermediate crude oil retreated 1 percent to $102.02 a barrel, capping a fourth loss in five weeks. The International Energy Agency said that oil producers outside OPEC, led by the U.S., Canada and Kazakhstan, will probably bolster supplies next year by the most since the 1970s.
Gold capped a second straight weekly retreat.
Gold analysts have turned the most bearish in a month on increased confidence that U.S. lawmakers will avoid a sovereign default and evidence that Asian demand for physical bullion is weakening. Fifteen analysts surveyed by Bloomberg News expect prices to decline next week, eight are bullish and four neutral, the highest proportion of bears since Sept. 13.
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