Inside Financial Markets

U.S. Stocks Rally From 2-Month Low as Treasuries Retreat

US stocksU.S. Stocks Rally From 2-Month Low as Treasuries Retreat

U.S. stocks rose, pushing benchmark indexes up from two-month lows, while Treasuries and gold fell as consumer spending climbed and corporate earnings beat estimates. The iShares MSCIemerging-markets exchange-traded fund rose and the dollar gained a fifth day versus the euro.

The Standard & Poor’s 500 Index (SPX) jumped 1.1 percent to 1,794.19 by 4:32 p.m. in New York, the biggest gain in a month. The emerging-markets ETF climbed 0.9 percent and European stocks rallied. Ten-year Treasury yields rose two basis points to 2.69 percent. The dollar strengthened 0.8 percent against the euro, while Hungary’s forint retreated. Gold and natural gas slumped more than 1.4 percent while aluminum dropped to a four-year low and West Texas Intermediate oil advanced.

The rally in American equities erased losses for the week after data showed the U.S. economy expanded 3.2 percent in the fourth quarter and spending climbed the most in three years. Investors are pulling money from exchange-traded funds that track developing-nation assets at the fastest rate on record, as concerns over a slowdown in China and reductions in central-bank stimulus sink currencies from Turkey to Malaysia.

“The fact we can print a quarter in which GDP growth was more than 3 percent even thoughgovernment spending contracted as much as it did, is unquestionably a positive,” Dan Greenhaus, chief global strategist at BTIG LLC in New York, said by phone. “The concerns over emerging markets are the dominant topic. To the extent this remains contained, the selloff is likely to be limited.”

ETF Flows

More than $7 billion flowed from ETFs investing in developing-nation assets in January, the most since the securities were created, data compiled by Bloomberg show.

Emerging economies have benefited from cheap money as three rounds of Fed bond buying pushed capital into their borders in search of higher returns. The central bank began paring the purchases by $10 billion to $75 billion this month and announced yesterday plans to reduce the amount by another $10 billion.

Facebook Inc. (FB) jumped 14 percent after the world’s largest social network reported that more than 50 percent of its advertising revenue came from mobile devices in the last quarter of 2013. Blackstone Group LP and Under Armour Inc. also rallied after reporting better-than-estimated earnings.

The Dow Jones Industrial Average (INDU) gained 0.7 percent, rising from yesterday’s lowest close since Nov. 7.

Companies in the S&P 500 probably increased their earnings per share by 6.6 percent in the fourth quarter of 2013 and their revenue by 2.6 percent, analysts’ estimates compiled by Bloomberg show.

U.S. Economy

The annualized gain in U.S. gross domestic product matched the median forecast in a survey of economists and followed a 4.1 percent advance in the prior three months, Commerce Department figures showed today. Growth in the second half of the year was the strongest since the six months ended in March 2012. Consumer spending, which accounts for almost 70 percent of the economy, climbed 3.3 percent, less than estimated.

Separate data showed contracts to purchase previously owned homes in the U.S. plunged in December by the most since May 2010 as higher borrowing costs and bad weather held back sales.

Asian stocks and industrial metals tumbled after a private report showed that China’s manufacturing industry contracted this month. The Hang Seng China Enterprises Index (HSCEI) of mainland companies listed in Hong Kong lost 0.8 percent, taking this year’s decline to 9.2 percent. Aluminum dropped as much as 1.1 percent to $1,723 a metric ton, the lowest level since July 2009, and zinc fell for a seventh day.

China Manufacturing

A Chinese Purchasing Managers’ Index (EC11CHPM) fell to 49.5 from 50.5 in December, HSBC Holdings Plc and Markit Economics said in a statement. The reading compared with the median 49.6 estimate in a Bloomberg News survey of 14 economists. A number below 50 indicates contraction.

European stocks advanced, with the Stoxx Europe 600 Index climbing 0.3 percent to pare its monthly decline to 1.5 percent. Givaudan SA, the world’s largest maker of flavors and fragrances, jumped 6.3 percent after posting full-year net income that beat analyst estimates. Diageo Plc (DGE), the biggest distiller, lost 4.7 percent after reporting sales growth that missed forecasts.

Hungary’s forint dropped versus the greenback as emerging-market currencies extended a week-long rout. The forint depreciated 0.8 percent to 228.15 per dollar after earlier dropping as much as 1.6 percent. The currency has declined “too fast, too big” and the central bank is monitoring its move and the market environment, Gyula Pleschinger, a member of the central bank’s Monetary Council, said yesterday.

Currencies, Gold

The dollar’s strength against the euro was driven partly by speculation that emerging-market central banks may take steps to prevent their exchange rates from falling further, according to Geoffrey Yu, senior currency strategist at UBS AG in London.

“If these central banks are getting ready for intervention, they would need to over-fund in dollars,” said Yu. “That may involve selling euro reserves into the U.S. currency.”

The yen has advanced 4.5 percent this year, the biggest gain in Bloomberg Correlation-Weighted Indexes that track 10 developed-nation currencies.

Gold futures tumbled 1.6 percent, the most since Dec. 19, as U.S. economic growth boosted speculation that the Fed will continue to scale back monetary stimulus.

Commodity Markets

Treasuries declined, with 10-year yields climbing from a two-month low as the U.S. sold $64 billion of notes, the first time it conducted two fixed-coupon debt auctions in a single day since October 2008.

U.S. debt losses were limited as the week-long slide in emerging-market assets boosted demand for the safest fixed-income securities. Today’s five- and seven-year auctions completed four note sales this week totaling $111 billion.

WTI oil rose 0.9 percent to $98.23 a barrel, the highest level in four weeks. Natural gas dropped 8.3 percent as a government report showed a U.S. stockpile decline that matched analyst estimates. Prices are up about 19 percent this month, heading for the biggest gain since September 2009.

Sanie Khan

Sanie Khan holds a deep knowledge of the financial markets in Pakistan. Based in Karachi, he has over 20 years of hands-on management experience in financial technologies and managing operations in the financial sector. He was the General Manager at the Pakistan Stock Exchange (PSX) for 17 years. He along-with senior members of Exchange

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Inside Financial Markets was a joint publication of Pakistan Stock Exchange (PSX)and Society of Technical Analysts Pakistan (STAP)