Stocks, Oil Advance on Manufacturing Growth; Greek Bonds Drop
By Rita Nazareth and Esme E. Deprez
June 15 (Bloomberg) -- Stocks rose, sending the MSCI World Index to a sixth straight gain, and oil climbed as growth in New York manufacturing added to signs the global economy is weathering Europe’s debt crisis. Greek bonds sank after Moody’s Investors Service cut the nation’s credit rating to junk.
The Standard & Poor’s 500 Index climbed 1.2 percent to 1,102.56 at 11:01 a.m. in New York after the Federal Reserve Bank of New York’s general economic index showed an 11th consecutive month of growth. The MSCI World increased 1.1 percent to extend its longest rally since October. Greek 10-year bond yields jumped 74 basis points to 9.08 percent. Oil rallied above $76 a barrel and the euro strengthened topped $1.23.
Stocks in Europe rebounded from early losses as News Corp.’s offer for British Sky Broadcasting Plc offset concern Greece’s downgrade will worsen the region’s debt crisis. U.S. equities also gained after a government report showed prices of imported goods fell in May, led by the biggest drop in petroleum costs since December 2008.
“We’ve moved from recession to recovery and now we’re moving into expansion,” said Mike Ryan, New York-based head of wealth management research for the Americas at UBS Financial Services Inc., which oversees about $663 billion. “Inflation remains subdued, suggesting the Fed will remain on the sidelines. The risk-off trade is starting to ebb a little bit.”
200-Day Average
The S&P 500 erased yesterday’s 0.2 percent drop and climbed above its highest closing level since June 3. The index rallied as much as 1.3 percent yesterday, approaching its 200-day average of 1,108, before erasing gains after Greece’s credit downgrade.
The S&P 500 is down 9.5 percent from its 19-month high in April amid concern European government spending cuts will slow the economic recovery and as BP Plc’s leaky well in the Gulf of Mexico pollutes the Louisiana coast in the worst oil spill in U.S. history. Almost $6 trillion has been erased from the value of global equities since the MSCI World Index reached its 2010 peak in April.
“The market stopped at resistance yesterday right around 1,105 on the S&P,” said Bruce Bittles, chief investment strategist at Milwaukee-based Robert W. Baird & Co., which oversees more than $75 billion in client assets. “The most important thing would be to close above 1,105 on much stronger volume. That would indicate the correction has run its course.”
Industrials Rally
General Electric Co. and Boeing Co. paced gains in all 57 industrial companies in the S&P 500. The Fed’s so-called Empire State Index rose to 19.6, in line with the median forecast of economists surveyed by Bloomberg News. Readings greater than zero signal expansion in the gauge that covers New York, northern New Jersey and southern Connecticut.
CBOE Holdings Inc., the last major U.S. securities exchange owned by its members, rose on its first day of trading. CBOE raised $339 million selling 11.7 million shares at $29 each yesterday. The shares rallied 15 percent to $33.42.
Treasuries were little changed, with the 10-year yield at 3.26 percent. Net buying of long-term U.S. equities, notes and bonds totaled $83 billion in April, compared with net purchases of a record $140.5 billion in March, Treasury Department data released today showed. Economists in a Bloomberg News survey projected long-term U.S. financial assets would show a net increase of $70 billion in April.
Asian, Europe Stocks
The MSCI Asia Pacific Index increased 0.2 percent and more than three stocks advanced for every one that declined in Europe’s Stoxx 600, led by media companies.
BSkyB, the U.K.’s biggest pay-TV provider, surged 17 percent after the company rejected News Corp.’s offer of 700 pence a share, signalling BSkyB may have to improve its bid.
The MSCI Emerging Markets Index of 21 countries gained 0.6 percent, rebounding from a 0.4 percent drop earlier today. Russia’s Micex index advanced 2.6 percent as oil, the country’s main export, rose 1.7 percent to $76.36 a barrel in New York amid forecasts that a government report will show U.S. supplies fell for a third week.
The Dubai Financial Market General Index dropped 1.3 percent to the lowest closing level since March 2009, after Tristan Cooper, a Moody’s analyst, said in an interview in Abu Dhabi that the emirate’s state-owned companies may have to restructure more debt.
The euro strengthened against nine of 16 major currencies, while the dollar weakened against 14.
Greek, German Yield Spreads
The extra yield, or spread, investors demanded to hold Greek 10-year bonds instead of German bunds, Europe’s benchmark government debt securities, widened to 641 basis points, the highest since May 7, according to Bloomberg generic data. The bund yield was three basis points higher at 2.67 percent.
Greek credit swaps signal a 48 percent probability the nation will default within five years. The cost of insuring $10 million of Greece’s bonds for five years jumped $43,500 to $799,000 a year, making the nation’s debt the third most expensive to protect after Venezuela and Argentina, according to CMA DataVision.
Standard & Poor’s already cut Greece to below investment grade on April 27.
Greece, Spain and Portugal are cutting spending to tackle their budget deficits, which swelled as the recession crimped government tax revenue. Greek Prime Minister George Papandreou pledged to bring the deficit, which increased to 13.6 percent of gross domestic product last year, to 8.1 percent of GDP this year and to under the 3 percent European Union limit in 2014.
Spain, Portugal Cuts
Spain and Portugal need additional budget cuts to meet deficit targets even as their shortfalls threaten to choke growth and produce a “snowball” effect on their debt levels, according to a draft European Commission document obtained by Bloomberg News. The draft report is dated May 26.
Germany’s DAX Index of stocks climbed 0.6 percent even as investor confidence fell to 28.7 this month from 45.8 in May, lower than economists forecast, the ZEW Center for European Economic Research said today.
The Reuters/Jefferies CRB Index of commodities climbed 1.1 percent to the highest level since May 13.
“I think it’s important that commodity prices firm up here,” said Robert W. Baird’s Bittles. “The firming trend would be helpful in calming fears about a double dip. If they continue to drop that would suggest that the global economy is really losing steam.”
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