Stocks, Commodities Climb, Treasuries Fall on China Yuan Move
By Rita Nazareth and Nikolaj Gammeltoft
June 21 (Bloomberg) -- Global stocks gained for a 10th day, sending the MSCI World Index to its longest rally in 11 months, oil and copper soared and Treasuries retreated after China said it will relax the yuan’s fixed rate to the dollar.
The Standard & Poor’s 500 Index rose 0.7 percent and the Stoxx Europe 600 Index climbed to the highest level since May 13 at 11:05 a.m. in New York. The MSCI Asia Pacific Index jumped 2.5 percent, the most in more than two weeks. Oil exceeded $78 a barrel and copper rallied to lead gains in commodities. The Korean won strengthened as the yen and dollar fell against most major currencies, while the 10-year Treasury yield surged 5 basis points to 3.27 percent.
Stocks rallied from Tokyo to New York after the People’s Bank of China said it will end a two-year currency peg adopted during the global financial crisis to protect exporters, a sign policy makers expect the world economy to strengthen. China, the world’s largest copper consumer and second-biggest user of oil after the U.S., signaled the change before the G-20 summit in Toronto on June 26 to 27.
“China’s move is a positive,” said Burt White, who helps oversee $284 billion as chief investment officer at LPL Financial Corp. in Boston. “It’s going to help exporters in the U.S. and Europe. It shows that China and the U.S. will continue to be the two main engines of growth. Commodities are pricing in a strong advance in the global economy. The stock market has good momentum.”
Commodity Producers, Industrials
The S&P 500 rose for a third day, its longest rally in two months. Commodity producers and industrial companies led the advance. Caterpillar Inc., Alcoa Inc. and General Electric Co. rallied at least 2.3 percent to lead gains in the Dow Jones Industrial Average.
The People’s Bank of China pledged on June 19 to make the yuan more flexible, while ruling out a one-time revaluation of the currency that’s been held at about 6.83 yuan per dollar since mid-2008. The global economy is “gradually recovering and the upturn in the Chinese economy has become more solid,” it said in a statement announcing the action.
“This decision is great for industrial, energy and materials stocks,” said Don Wordell, a fund manager for Atlanta-based RidgeWorth Capital Management, which oversees about $62 billion. “You will have rising demand from China because oil is getting cheaper to the Chinese consumers, industrial companies will have to build out the energy infrastructure and materials producers will benefit from higher wages and wealth in China.”
Rally in Shanghai
Gains in Asia were led by the Shanghai Stock Exchange Composite Index, which surged 2.9 percent. Toyota Motor Co., the world’s biggest automaker, rose 1.7 in Tokyo while Mitsubishi Corp. jumped 6.6 percent. Posco, South Korea’s biggest steelmaker, rallied 5.9 percent in Seoul.
In Europe, 16 of 19 industry groups in the Stoxx 600 advanced. Basic-resources shares led the rally, as BHP Billiton Ltd., the world’s biggest mining company, gained 4.4 percent and Rio Tinto Group surged 4.6 percent in London. Daimler AG led automakers higher, climbing 2.3 percent in Frankfurt. Akzo Nobel NV rallied 2.1 percent in Amsterdam after agreeing to sell its National Starch business to Corn Products International Inc.
BP Plc tumbled 2.8 percent after saying the cost of its response to the Gulf of Mexico oil spill, the worst in U.S. history, has accelerated to reach $2 billion.
Emerging Markets
The MSCI Emerging Markets Index rose 2.8 percent, extending its 10-day rally to 10 percent, the longest winning streak since September 2005. Benchmark equity indexes in every major emerging market open for trading advanced, led by industrial companies on optimism for increased sales to China.
Gold for immediate delivery was little changed after jumping to an all-time high of $1,265.30 an ounce. Copper for delivery in three months on the London Metal Exchange surged as much as 4.6 percent to $6,729.75 a metric ton, the biggest increase since May 18, before paring its advance to 2.7 percent. Crude for July delivery, which expires tomorrow, rose 1.6 percent to $78.41 a barrel in electronic trading on the New York Mercantile Exchange.
Government bonds in the U.S. and Germany declined as their appeal as a haven waned. The 2-year Treasury yield climbed 1 basis points to 0.72 percent, while the German 10-year bund yield rose 3 basis points to 2.76 percent. The yields on bonds of so-called peripheral euro-region nations fell, narrowing the difference between Spanish and German 10-year securities by 17 basis points, or 0.17 percentage point, to 169 basis points.
Default Protection
The cost of insuring against losses on European corporate bonds plunged by the most in more than three weeks, with the Markit iTraxx Crossover Index of credit-default swaps on 50 junk-rated European companies falling 28 basis points to 492, the lowest since May 13, according to Markit Group Ltd.
Developing-nation, Asian and commodity currencies rose most against the dollar, with the Korean won strengthening 2.6 percent, its biggest gain since June 3. The Australian dollar jumped 1.1 percent and the yen fell against all 16 of its most- traded counterparts.
U.K. government bonds rose as a report showed London house prices increased to a record, and before the government presents an emergency budget tomorrow. The 10-year U.K. gilt yield fell three basis points to 3.51 percent.
----With assistance from Patrick Chu in Tokyo, Stephen Kirkland, Matthew Brown, Claudia Carpenter, David Merritt, Abigail Moses, Michael Patterson and Steve Voss in London. Editor: Michael P. Regan
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