London: US stocks were set for the highest level on record, led by energy companies, as oil jumped on optimism Opec (Organization of the Petroleum Exporting Countries) will agree to cut output. The dollar halted its longest winning streak versus the euro.
The S&P 500 Index surpassed its 15 August closing high of 2,190.15, the Dow Jones Industrial Average was also set for an all-time high, and the Russell 2000 Index rose for a 12th day in its longest rally since 2003. Oil extended gains as Iran signalled optimism that Opec will agree to a supply-cut deal and Iraq said it will offer new proposals to help bolster the group’s unity before members meet next week in Vienna. The dollar’s decline versus the euro was its first in 11 days. Treasuries rose.
The new milestone for the S&P 500 arrived as companies ended a five-quarter profit slump and Donald Trump’s election fueled optimism that his plans to cut taxes and boost fiscal spending will benefit industries more geared toward economic growth. Acknowledging the strength in the economy, Federal Reserve chair Janet Yellen said Thursday that the central bank is close to lifting interest rates, comments that sent Treasuries lower and yields on the 10-year note toward 2.25%.
“There’s optimism that it’s more likely that Trump is going to put us on an economic fast track versus Clinton,” said Terry Morris, manager director of equities at BB&T Institutional Investment Advisors in Wyomissing, Pennsylvania. “The election had something to do with this, and I also think there’s some short covering going on. People that were hedging the election had to rush to cover after the news, and I think generally the perception is the economy is starting to pick up as the Fed is likely to raise rates in December.”
The Bloomberg Commodity Index, which measures returns on raw materials, advanced 1.3% at 9:30 am in New York, set for its first two-day gain since 24 October. West Texas Intermediate crude rose 2.1% to $47.89 a barrel after climbing 0.6% on Friday.
Oil has rebounded since hitting the lowest in almost two months last week as Opec members began making renewed diplomatic efforts before their meeting 30 November to finalize the output deal informally agreed to in September. The group is seeking to trim output for the first time in eight years, a plan that’s been complicated by Iran’s commitment to boost production and Iraq’s request for an exemption to help fund its war with Islamic militants.
“The run-up to the Opec meeting should be a major driver of crude oil pricing near term,” Citigroup Inc. analysts including Ed Morse and Daoyuan Zhou said in an e-mailed note. “In the months after the meeting, member countries may yet deviate from the agreement, which could add downward pressure on prices.”
Nickel rallied from a two-week low as industrial metals renewed their advance amid optimism over demand in China and the US. The metal used in stainless steel added 2.8% on the London Metal Exchange after prices slumped 3.6% on Friday to close at the lowest since 4 November. Copper jumped 2.4%, zinc rose 1.4% and gold added 0.7%.
The euro advanced 0.3% to $1.0622, halting the 10-day drop that saw Europe’s single currency weaken 5%. The yen fell 0.2% to 110.75 per dollar, extending the 1.7% drop in the previous two trading days. The Bloomberg Dollar Spot Index fell for the first time in four days, slipping 0.2%.
South Africa’s rand led gains among major currencies, jumping 1.5%, as the country proposed labour law reforms a few days before a credit-rating review. Mexico’s peso rose 0.7% and Brazil’s real jumped 0.7%.
In emerging markets, Russia’s ruble advanced 0.6% as oil gained. The MSCI Emerging Markets Currency Index advanced 0.3%, following a fourth weekly decline.
The S&P 500 Index advanced 0.3%.
The Stoxx Europe 600 Index was little changed. Investors are turning their focus to European Central Bank stimulus, political risks ahead for the region and the recent increase in government-bond yields, which is making equities less attractive, according to Peter Dixon, an economist at Commerzbank AG in London.
“Equities look pricey when you consider the risks ahead,” he said. “The Italian referendum in two weeks’ time and concern about the future of ECB policy are starting to rise in people’s agenda. I don’t see investors taking on much more risk before the year-end.”
European stocks have been trading in a tight range most of the year and remain below their level from before the UK Brexit referendum. They’ve been particularly volatile in recent days, alternating between intraday gains and losses for 10 straight sessions, the longest streak since May 2013. The volume of Stoxx 600 shares changing hands was 17% lower than the 30-day average and commodity and energy producers were the biggest gainers, rising more than 1.8%.
Shares of India’s big state-owned banks fell on concern that the government’s recall of high-value currency notes will hurt profit. State Bank of India, the nation’s biggest by assets, declined 6.7%, the most on an intraday basis since 9 November and the worst performance on the benchmark S&P BSE Sensex, which dropped 1.5%.
Banco do Brasil SA climbed 5.8%. Latin America’s largest bank by assets said it will close 402 branches and ask employees to take voluntary retirement packages as part of an overhaul to save 750 million reais ($222 million) a year.
Treasury 10-year notes advanced for the first time in four days, narrowing the yield spread with benchmark German bonds, which had reached the widest levels since 1989 after the US presidential election earlier this month.
Yields on Treasuries due in a decade slipped three basis points to 2.32%, after surging more than 20 basis points last week. Two-year note yields were little changed at 1.06% before an auction of the securities Monday.
The US bond market has trailed behind its peers in Europe since the US election as Trump’s ambitious spending plans prompted traders to ratchet up their expectations for inflation and growth. Traders see a 98% likelihood of the Fed raising interest rates at next month’s meeting, fed funds futures show.
Bonds slipped in Europe after being whipsawed by politics and the outlook for monetary policy. ECB president Mario Draghi, who suggested Friday that the euro region’s recovery still depends on monetary support, is scheduled to address European lawmakers in Strasbourg, France.
Germany’s 10-year bond yield rose two basis points to 0.29% and France’s was at 0.76%.
Brazil’s $3.55 billion of notes due in 2045 have lost 10% since Trump won the US election. The slump has cut the return on the securities this year to 20% from 34% before the election. Bloomberg