Global Stocks Gain on Putin as Bonds Rise on Economy; Oil Sinks

Aug 14, 2014 4:17 pm ET

Aug. 14 (Bloomberg) -- Global stocks rose as tensions eased in Ukraine, while bonds climbed on bets central banks will support the economy amid weaker-than-forecast data. Brent oil tumbled to a 13-month low to pace losses among commodities.

The MSCI All-Country World Index and the Standard & Poor’s 500 Index each added 0.4 percent at 4 p.m. in New York. The rate on 30-year Treasuries dropped 5 basis points after the sale of $16 billion in bonds. An advance in European bonds sent Greek 10-year yields below 6 percent and pushed Germany’s to a record 0.998 percent. Russian shares increased for a fifth day. Commodities erased the year’s gains as oil lost more than 2 percent. Warren Buffett’s Berkshire Hathaway Inc. traded above $200,000 for the first time.

The euro area’s recovery unexpectedly stalled in the second quarter as its three biggest economies failed to grow, underlining the vulnerability of the region to weak inflation and the Ukraine crisis. Russia shouldn’t isolate itself from the outside world, President Vladimir Putin said as he pledged to work to halt the conflict. Applications for unemployment benefits in the U.S. rose more than forecast last week, interrupting a steady decline to pre-recession lows.

“The market is ebbing and flowing off of geopolitical news, it’s been all quiet in the past 24 hours, and that has given a positive push to the market today,” Chad Morganlander, a money manager at St. Louis-based Stifel, Nicolaus & Co., which oversees about $160 billion, said in a phone interview. “The overall jobs market in the U.S. remains bullish, but there is somewhat cautious tone on the European economy.”

European Bonds

Bond yields fell to records across the euro area as the darkening economic outlook boosted speculation the European Central Bank will take additional measures to revive growth. France’s 10-year yield declined as much as four basis points to 1.39 percent and Ireland’s reached 2.09 percent. Rates in the Czech Republic also fell to the lowest on record after that nation’s economy stagnated in the second quarter.

ECB President Mario Draghi committed last week to build on the unprecedented stimulus unveiled in June if the outlook deteriorates. U.K. Monetary Policy Committee member David Miles said today that the Bank of England could keep rates at record- low levels for “a bit longer yet.” His comment follows BOE Governor Mark Carney’s yesterday that the Britain’s expansion faces challenges.

The pound was little changed at $1.6688 after falling to $1.6658, the lowest since April 8.

European Economy

The decline in German gross domestic product was greater than economists forecast, while the stagnation in France prompted the government to scrap its 2014 deficit target. For the region as a whole, gross domestic product was unchanged from the previous quarter, versus analyst estimates for 0.1 percent growth. A separate report showed consumer prices rose an annual 0.4 percent in July, less than half the ECB’s goal of just under 2 percent.

In the U.S., jobless claims climbed by 21,000 to 311,000 in the period ended Aug. 9, the highest in six weeks, a Labor Department report showed. The median forecast of 48 economists surveyed by Bloomberg called for 295,000. The four-week average of claims, a less-volatile measure than the weekly figure, increased to 295,750 from 293,750 in the prior week that was the lowest since 2006.

“We have to factor in some volatility in the summer jobless claims numbers and look at the four-week average,” John Manley, who helps oversee about $233 billion as chief equity strategist for Wells Fargo Funds Management in New York, said in a phone interview. “Even if the jobless claims numbers are higher than expected, this negativity can be overshadowed by the fact that rates will remain lower.”

Fed Stimulus

The Federal Reserve is watching economic data to help gauge adjustments to monetary stimulus. The central bank remains on pace to wind down its monthly bond purchases in October. Fed Chair Janet Yellen has said officials will keep its benchmark interest rate low for a “considerable time” after the bond buying ends.

Treasury 30-year yields fell 5 basis points to 3.20 percent as the U.S. sale of $16 billion in bonds drew the lowest yield at an auction since May 2013.

The debt yielded 3.224 percent, compared with a forecast of 3.256 percent in a Bloomberg News survey of eight of the Federal Reserve’s 22 primary dealers. The bid-to-cover ratio, which gauges demand by the amount bid with the amount offered, was 2.60, versus an average 2.40 at the past 10 sales.

Driving Demand

“The Fed is on hold for at least probably a year,” Thomas di Galoma, head of fixed-income rates at ED&F Man Capital Markets in New York, said in a phone interview before the auction. “That is going to drive the demand for longer-dated securities going forward.”

There’s a 34 percent chance the Fed will increase its benchmark interest-rate target to at least 0.5 percent by June, futures contracts indicate, down from a 51 percent likelihood seen on July 31. The central bank has held its target for the rate in a range of zero to 0.25 percent since December 2008.

Wal-Mart Stores Inc., the world’s largest retailer, rose 0.5 percent even as it reported stagnant same-store sales growth and cut its earnings forecast for the year. Kohl’s Corp. climbed 3.3 percent as it reported earnings that topped estimates.

About 75 percent of S&P 500 companies that have posted results this season have beaten analysts’ estimates for profit, while 65 percent exceeded sales projections, according to data compiled by Bloomberg.

Berkshire Hathaway

Berkshire Hathaway Class A shares climbed 1.6 percent to $202,850, further validating Buffett’s vision for building wealth at the company he’s run for almost five decades. The level is more than 60 times Seaboard Corp., the agribusiness and transportation company that has the second-highest price among stocks listed on U.S. exchanges.

The S&P 500 reached a record on July 24 before sliding as much as 3.9 percent as President Barack Obama authorized air strikes against militants in Iraq and concern grew that fighting in Ukraine would disrupt world trade. The gauge is 1.6 percent below its all-time high.

The Stoxx 600 reversed a decline of as much as 0.4 percent before the Putin speech. The benchmark gauge has fallen 1.5 percent this month amid the global crises.

Ukraine said yesterday it would accept the assistance due to arrive on hundreds of trucks from Russia if the Red Cross distributes the aid after customs and border officers examine it. The government in Kiev also announced its own plan to send in supplies today.

The hryvnia strengthened 1.5 percent. Russia’s Micex advanced 0.6 percent.

Copper, Oil

The Bloomberg Commodity Index slipped 0.5 percent to the lowest since Jan. 27. Brent oil dropped 2.2 percent, the most since Jan. 2, and West Texas Intermediate decreased 2.1 percent as the euro bloc’s economic recovery stalled amid signs of ample global supply. Libya said it will reopen its largest oil export port within days and U.S. crude supplies rose for the first time in seven weeks.

Copper fell 0.6 percent, reaching a seven-week low.

The yen weakened versus all of its 16 major peers amid speculation the crises in Ukraine and the Middle East have waned. The euro was little changed at $1.3367 after falling to $1.3333 on Aug. 6, the least since Nov. 8.

The MSCI All-Country World Index is poised for its largest weekly gain since April, increasing 1.6 percent over the past four days. The MSCI Emerging Markets Index rose 0.1 percent, climbing for a fourth day. The gauge has advanced 2.6 percent over that time period.

The Hang Seng China Enterprises Index of mainland shares traded in Hong Kong fell from an eight-month high, retreating 1.1 percent. The Shanghai Composite Index slipped 0.7 percent, the most in a week, on growing concern government efforts to shore up economic growth will be insufficient.

South Korea’s won rose the most since April 9 after the central bank lowered benchmark borrowing costs for the first time since May 2013 to revive economic growth.

--With assistance from Yoshiaki Nohara in Tokyo, Emma O’Brien in Wellington, Cecile Vannucci, Stephen Kirkland and Claudia Carpenter in London, Lukanyo Mnyanda in Edinburgh, Nick Gentle in Hong Kong and Akin Oyedele in New York.