Bloomberg News

Stocks Up, Bonds Down on Easing in Ukraine and U.S. Pushback in Iraq

August 11, 2014

Stocks Climb While Bonds Retreat on Easing Tension; Euro Falls

In this handout image provided by the U.S. Department of Defense, Staff Sgt. Daniel Leavindofske, 8th Expeditionary Air Mobility Squadron ramp team chief and Senior Airman David Babcock, air transportation journeyman, assist with loading bundles of halal meals on to a C-17 Globemaster III for a humanitarian airdrop mission over Iraq on Aug. 9, 2014, at a base in the U.S. Central Command area of responsibility. Photographer: Staff Sgt. Vernon Young Jr./U.S. Air Force via Getty Images

Global stocks rose the most since April while the yen fell on optimism that tension between Russia and Ukraine will ease and U.S. airstrikes will push back militants in Iraq. Emerging markets rallied and oil gained.

The MSCI All-Country World Index advanced 0.8 percent at 4 p.m. in New York, the biggest gain on a closing basis since April 16. The MSCI Emerging Markets Index jumped 1.6 percent, the most since November. The Standard & Poor’s 500 Index added 0.3 percent, after rebounding 1.2 percent on Aug. 8, and the Stoxx Europe 600 Index rallied 1.4 percent. Ten-year Treasury rates were little changed at 2.42 percent. The yen dropped from a three-week high and euro fell against all but one of its 16 major peers. West Texas Intermediate oil rose 0.4 percent.

U.S. equities rallied on Aug. 8 after Russia said warplanes ended drills near Ukraine. In the Middle East, American jets and drone aircraft hit Islamic State fighters in multiple attacks in Iraq, while Israeli and Palestinian negotiators staked out positions for a long-term agreement on the Gaza Strip amid a new Egyptian-brokered truce.

“There is some sense that geopolitical risk out there is waning, or at least the situation is better than the belligerent talk that was coming out in the middle of last week,” Bill Schultz, who oversees $1.2 billion as chief investment officer at McQueen, Ball & Associates in Bethlehem, Pennsylvania, said in a phone interview. “We’re at lower levels than we were two weeks ago, so there’s a better entry point if you look to add stocks to your portfolio.”

Global Conflicts

The S&P 500 had fallen 3.9 percent from its record of 1,987.98 on July 24 on concern that conflicts from Iraq to Israel and Ukraine could slow global economic growth. The index on Aug. 7 came within 60 points of wiping out its gains for 2014 and closed below its 100-day moving average for the first time since April before rallying the following day.

The equities benchmark has gone without a 10 percent correction since 2011. It trades at 17.5 times the reported earnings of its companies, after reaching a four-year high of 18.3 in June.

U.S. equities advanced today as technical analysts said stocks will likely extend last week’s rebound. A “tradeable bounce” may be in progress, wrote Jonathan Krinsky at MKM Partners LLC in a note, citing 1,965 as a key level for the S&P 500. About 50 percent of shares in the S&P 500 are oversold, according to Katie Stockton of BTIG LLC.

The Chicago Board Options Exchange Volatility Index, which usually moves in the opposite direction to the S&P 500, lost 10 percent to 14.16 today.

MannKind Corp. surged 4.3 percent after Sanofi agreed to pay the drugmaker as much as $925 million for rights to the world’s only available inhaled insulin. Kinder Morgan Inc. rallied 9 percent after announcing plans to consolidate its energy businesses.

European Shares

The Stoxx 600 rose the most since April 22, with only 36 stocks in the index declining, after dropping 2.1 percent last week. Banco Popolare SC rose 8.2 percent after the Italian lender unexpectedly reported a second-quarter profit. The bank lowered its operating costs by reducing its spending on staff and administration. Balfour Beatty Plc gained 2.5 percent after the British construction company rejected a revised merger proposal from Carillion Plc.

The 10-year Treasury yield was little changed at 2.42 percent amid speculation that turmoil in Ukraine may still escalate. The rate slid to 2.35 percent on Aug. 8, the lowest since June 2013, on signs of easing tension in the region.

High Probability

Yields erased an early gain today as Reuters reported that NATO Secretary General Anders Fogh Rasmussen said there’s a “high probability” Russia could intervene militarily. Ukraine and Russia announced plans to get aid to civilians caught in fighting in rebel-held east Ukraine, amid warnings to Vladimir Putin the step can’t be a pretext for military intervention in support of the separatists.

Germany’s 10-year bund yield, Europe’s benchmark, gained 1 basis point to 1.06 percent after falling to a record-low 1.023 percent last week. The rate on similar-maturity U.K. gilts increased 3 basis points to 2.49 percent.

Emerging markets rebounded from a six-week low as benchmark gauges from China and the Philippines to Russia, Poland and South Africa advanced more than 1 percent. Chinese inflation held below the government’s goal in July, data showed over the weekend.

Russia’s Micex Index jumped 1.8 percent as OAO Sberbank and VTB Group climbed more than 3.8 percent. MSCI Inc. said it kept the country’s biggest banks in its Russia gauge after the U.S. and European Union imposed sanctions blocking the purchase of new bonds or stocks issued by the lenders.

Turkish Elections

Turkish stocks retreated after Prime Minister Recep Tayyip Erdogan won the country’s first direct presidential election, with 51.8 percent of the vote and enough to avoid a run-off, according to preliminary results show. The Borsa Istanbul 100 index of shares fell 2.4 percent.

The Hang Seng China Enterprises Index (HSCEI) of mainland companies listed in Hong Kong advanced 1.9 percent, the most since July 23. The Shanghai Composite Index added 1.4 percent. The consumer price index rose 2.3 percent from a year earlier, the National Bureau of Statistics said, the same pace as in June and also the median estimate in a Bloomberg News survey.

South Africa’s All-Share Index (JALSH) climbed 1.7 percent, the most since Dec. 27. African Bank Investments Ltd. got emergency support from South Africa’s central bank in a plan calling for the company to raise 10 billion rand ($938 million) in capital and break off a so-called bad bank for soured loans.

Yen, Dollar

The yen weakened 0.2 percent to 102.20 per dollar after reaching 101.51 on Aug. 8, the strongest since July 24. The euro declined 0.2 percent to $1.3385 before reports this week that analysts said will show the pace of growth slowed in the second quarter and inflation in the 18-nation currency bloc remained less than half the European Central Bank’s goal.

The Bloomberg Dollar Spot Index was little changed before a report this week that may show retail sales grew for a sixth month.

Norway’s krone rallied 1.2 percent against the euro, the most since September, after a report showed inflation in the Nordic nation exceeded economist forecasts.

West Texas Intermediate oil increased 0.4 percent, advancing for a third day on estimates that U.S. inventories declined last week as refineries processed record amounts of crude for this time of year.

To contact the reporters on this story: Claudia Carpenter in London at ccarpenter2@bloomberg.net; Elena Popina in New York at epopina@bloomberg.net

To contact the editors responsible for this story: Justin Carrigan at jcarrigan@bloomberg.net; Lynn Thomasson at lthomasson@bloomberg.net Jeff Sutherland, Claudia Carpenter


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