US stocks climb on economy; Europe bonds rise on ECB, Ukraine
The S&P 500 Index advanced 0.4% in New York; the Stoxx Europe 600 Index added 0.1%
London/New York: The US stocks rose as jobless claims fell and earnings topped estimates to fuel optimism in the economy. Bonds in Europe rallied, while equities fluctuated after the region’s central bank said risks to the recovery are increasing as the crisis in Ukraine escalates.
The Standard & Poor’s 500 Index advanced 0.4% at 9:33 am in New York. The Stoxx Europe 600 Index added 0.1%. Germany’s two-year yield touched minus 0.004% and the 10-year yield slid to a record 1.078%. The euro advanced versus the yen for the first time in four days. Russia’s ruble dropped 0.5%.
The decline in jobless claims last week sent the average over the past month to an eight-year low, while results from 21st Century Fox Inc. beat analysts’ forecasts. The European Central Bank (ECB) kept interest rates unchanged at record lows as the Ukraine crisis strengthened the headwinds facing the euro area’s recovery. ECB president Mario Draghi has said large-scale asset purchases are an option for dealing with a severe economic shock.
“The fundamentals have deteriorated in Europe," said Allan von Mehren, chief analyst at Danske Bank A/S in Copenhagen. “Markets are maybe even starting to price in that some time down the road we could see more easing from the ECB. Yields could stay negative if Ukraine continues to escalate."
Draghi said the risks to the recovery from conflicts including that in Ukraine are increasing. Data on Thursday showed German industrial output grew less than forecast in June, while a report on Wednesday indicated Italy slipped back into recession.
Putin Retaliation
The stand-off between Russia and the US and its allies escalated into the worst such conflict since the Cold War. Russia has massed troops along its border with Ukraine, prompting the US to say there’s a risk of an invasion.
President Vladimir Putin retaliated on Wednesday against the EU and the US sanctions by ordering restrictions on food imports from countries that seek to punish Russia.
Heightened geopolitical risks, as well as developments in emerging market economies and global financial markets, may have the potential to affect economic conditions negatively, Draghi said on Thursday.
Bond market gains sent yields on 10-year securities to record lows in Austria, Finland and the Netherlands, while the rate on UK gilts dropped below 2.5% for the first time in almost a year. The pound was little changed at $1.6848 after the Bank of England left its benchmark interest rate at 0.5% and maintained its asset purchasing plan.
Treasuries rose, with 10-year yields declining one basis point to 2.46%.
Jobless Claims
In the US, jobless claims decreased by 14,000 to 289,000 in the week ended 2 August from 303,000 in the prior period, a labour department report showed on Thursday. The median forecast of 47 economists surveyed by Bloomberg called for an increase to 304,000.
“You’ve got labour reports coming in positive and a gap in wages starting to fill in, which makes for a more robust consumer," Tom Stringfellow, president and chief investment officer of San Antonio-based Frost Investment Advisors LLC, which manages about $10 billion, said in a phone interview. “A more robust economy means an improving earnings picture."
Twelve of the 19 industry groups in the Stoxx 600 advanced, with trading volume 15% greater than the 30-day average, according to data compiled by Bloomberg.
Commerzbank AG added 2.6% after Germany’s second-biggest bank said second-quarter profit more than doubled as it shed unwanted assets. Nestle SA rose 3% after the world’s largest food company announced plans for a share buyback as first-half revenue growth exceeded analysts’ estimates. Zurich Insurance Group AG gained 3.2% after Switzerland’s biggest insurer reported that quarterly profit climbed 6% as it took fewer losses from natural catastrophes.
Adidas AG lost 3.7% after the world’s No. 2 sports-gear maker cut its 2014 profitability forecast. Munich Re slipped 1.6% after the world’s biggest reinsurer posted earnings that missed analyst estimates. Beiersdorf AG, the maker of Nivea cream, slid 3.3% after first-half sales growth that fell short of analysts’ projections. Old Mutual Plc declined 2.4% after Africa’s largest insurer said profit in the first six months dropped 5% as the rand weakened.
Emerging Markets
The MSCI Emerging Markets Index lost 0.4%, poised for the lowest close since 1 July. The Shanghai Composite Index sank 1.3%, the most in more than a month, before Friday’s trade data. The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong retreated 0.9%, its third day of declines.
Russia’s Micex fell 1.5% to a three-month low as retailers dropped on concern a ban on food imports from sanctioning countries will cut earnings. OAO Magnit, the nation’s largest food retailer, slumped 4.8%.
Putin on Wednesday ordered restrictions on food and agricultural imports for one year from countries that have imposed or supported sanctions against Russia, according to the Kremlin website.
Australian 10-year government debt paid 3.42%, down nine basis points. The Aussie dollar weakened at least 0.6% against 31 major currencies. The country’s unemployment rate unexpectedly climbed in July to the highest since August 2002 as joblessness increased along the nation’s eastern seaboard, increasing the likelihood interest rates will remain at a record low for an extended period.
African Bank Investments Ltd., South Africa’s largest provider of unsecured loans, plunged to the lowest in almost two decades after saying it expects a record loss and will need to tap investors for $791 million. The shares dropped 74%, extending Wednesday’s 61% slide.
South Africa’s rand slid 0.2% against the dollar before a report that will probably show manufacturing shrank in June, according to the median of 12 estimates in a Bloomberg survey of economist.
The Philippine peso weakened 0.7%. The World Bank cut the country’s 2014 growth forecast to 6.4% from the previous forecast of 6.6%.
The Bloomberg Commodity Index of 22 raw materials fell 0.1% after gaining 0.8% on Wednesday. Lean hogs dropped 1%, zinc fell 0.9% and wheat declined 0.6%. Bloomberg
Claudia Carpenter, Paul Dobson, Neal Armstrong and Cecile Vannucci in London, Emma O’Brien in Wellington and Nick Gentle in Hong Kong also contributed to this story.
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