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Stocks Rebound as Metals Rise While Treasuries Drop on Economy

June 25, 2013

June 25 (Bloomberg) -- Stocks rebounded from yesterday’s slide as better-than-forecast reports on durable-goods orders, housing and consumer confidence bolstered optimism in the economy and concern about interest rates in China eased. Metals advanced while Treasuries retreated.

The Standard & Poor’s 500 Index added 0.8 percent and the Stoxx Europe 600 Index climbed 1.5 percent at 1:56 p.m. in New York. China’s CSI 300 Index slid 0.3 percent after losing as much as 6.8 percent. The U.S. 10-year yield added five basis points to 2.59 percent after reaching 2.66 percent yesterday, the highest since August 2011. European corporate credit risk fell from a seven-month high. Copper jumped almost 2 percent.

Bookings for durable goods climbed 3.6 percent, Commerce Department data showed, while separate reports on house prices, new-home sales and consumer confidence topped estimates. China’s central bank will closely monitor the money-market rate and keep it at reasonable levels, according to Ling Tao, deputy director of the Shanghai branch of the People’s Bank of China. European Central Bank President Mario Draghi said the euro-area economy’s condition still requires a loose monetary policy.

"People are still digesting the news from the Fed, making mental adjustments for different levels of interest rates and what those might imply for securities’ prices over the next several quarters," John Carey, a fund manager at Boston-based Pioneer Investment Management Inc., said by telephone. His firm oversees about $208 billion. "I’m encouraged the market has stabilized a little here," he said. "It’s not a robust recovery of share prices but it’s at least a little bit of improvement after last week."

 

June Retreat

 

The gain in stocks lifted the S&P 500 from the lowest close in nine weeks. The index has climbed 11 percent this year. It is up 1.2 percent for the quarter and down 2.6 percent in June, poised for its worst month in more than a year.

PulteGroup Inc. rallied 4.1 percent and an S&P index of homebuilders jumped 2.2 percent. JPMorgan Chase & Co. and Bank of America Corp. gained at least 2.4 percent as financial companies rallied. Walgreen Co. sank 6.6 percent after posting quarterly profit that missed estimates. Netflix Inc. slid 1.9 percent after Sanford C. Bernstein & Co. cut its rating on the company to underperform.

 

Fed Watch

 

The S&P 500 dropped 1.2 percent yesterday as Chinese equities entered a bear market amid concern a cash crunch will hurt growth. The index pared an early drop of as much as 2 percent yesterday as Richard Fisher, president of the Federal Reserve Bank of Dallas, and Minneapolis Fed President Narayana Kocherlakota emphasized that U.S. monetary policy is still accommodative.

Today’s durable-goods data showed that excluding transportation equipment, where demand is volatile month to month, orders advanced 0.7 percent, also topping projections. A separate report showed the S&P/Case-Shiller index of home values for 20 cities climbed 12.1 percent for the year ended April, the most since March 2006, after a 10.9 percent gain in March.

Sales of new U.S. homes in May climbed to the highest level in almost five years, rising 2.1 percent to an annualized pace of 476,000 homes to exceed all estimates in a Bloomberg survey, Commerce Department figures showed. The Conference Board’s index of U.S. consumer confidence increased to 81.4 in June from 74.3 a month earlier.

 

Carmakers Rally

 

The Stoxx 600 rebounded from the lowest close since November as 18 of 19 industry groups advanced, with trading volume 11 percent higher than the 30-day average. The regional benchmark ended yesterday trading at 12.2 times its companies estimated earnings, the lowest level since January. The VStoxx Index, which gauges the price of options on the Euro Stoxx 50, fell 4.6 percent to 24.14, retreating from the highest level in almost four months.

"There’s a lot of valuation support -- we see the European market 20 percent undervalued at the current level," Robert Parkes, equity strategist at HSBC Holdings Plc in London, said in a phone interview today. "Any positive economic surprises we get will be well received by the market. We are not in that phase where bad news is good news and good news is bad news."

PSA Peugeot Citroen and Renault SA, France’s largest carmakers, led automobile shares to their biggest gain since November.

The MSCI Emerging Markets Index rebounded from a one-year low, rising 0.4 percent. Turkey’s benchmark gauge climbed 0.5 percent, rallying from the lowest level since November, India’s Sensex advanced 0.5 percent after closing yesterday at a 10-week low. Main equity gauges in South Korea, the Philippines and Taiwan dropped more than 1 percent.

 

China Markets

 

Chinese shares pared declines before Ling’s comments, with the Shanghai Composite Index falling 0.2 percent at the close after dropping as much as 5.8 percent. Ling is the first PBOC official to discuss publicly the increase in rates since a cash squeeze that sent the overnight repurchase rate to a record last week. Premier Li Keqiang is seeking to wring speculative lending out of the nation’s banking system after credit expansion outpaced economic growth.

Mark Mobius, who oversees $53 billion in emerging markets, said he has confidence in China’s central bank and is keeping his overweight position in the nation’s equities following a five-day tumble.

 

‘Cleaning Up’

 

"We should be confident about what the government is doing and they are cleaning up the system," Mobius, the executive chairman of Templeton Emerging Markets Group, said in a phone interview today from Monaco. "We are looking to add to Chinese exposure if the price is right. If the price comes down substantially, we would."

The U.S. 10-year yield has climbed from a record-low 1.379 percent set on July 25, 2012, and the five-year average is 2.75 percent. Volatility in Treasuries as measured by the Bank of America Merrill Lynch MOVE index climbed to 110.98 yesterday, the highest since November 2011. The daily average this year is 61.54.

Spanish 10-year yields fell four basis points to 5.07 percent after touching 5.13 percent, the highest since March 28. Australia’s 10-year yields tumbled 24 basis points to 3.80 percent, the biggest decline since August 2011.

The average yield to maturity on the more-than-20,000 securities in the Bank of America Merrill Lynch Global Broad Market Index rose to 2.16 percent yesterday, the highest since April 3, 2012.

 

Currency Volatility

 

Volatility in currencies surged since the Fed signaled last week it may start reducing stimulus this year. JPMorgan Chase & Co.’s Group of Seven Volatility Index, based on currency option premiums, was at 11.53 percent today after rising to 11.96 percent yesterday, the highest since January 2012.

The cost of insuring against losses on corporate bonds fell for the first time in four days. The Markit iTraxx Europe Index of credit-default swaps on 125 investment-grade companies dropped five basis points to 127.7.

Copper advanced after falling 2.2 percent yesterday. Nickel climbed 2.2 percent and silver rose 0.2 percent. West Texas Intermediate oil fluctuated near $95.20 a barrel, with trading 61 percent above the average for the past 100 days.

Gold futures for August delivery slipped 0.1 percent to $1,275.60 an ounce. Morgan Stanley lowered its forecasts for gold, joining Goldman Sachs Group Inc. and UBS AG in paring estimates on prospects that the Fed will scale back monetary stimulus as the economy recovers.

The bank cut its 2013 target to $1,409 an ounce from $1,487, reduced its prediction for 2014 to $1,313 from $1,563, and trimmed its 2015 estimate to $1,300 from $1,450. Morgan Stanley also lowered its gold and silver forecasts through 2018, analysts Peter Richardson and Joel Crane wrote in a report.

Analysts from BNP Paribas SA to Standard Bank Plc are cutting their outlook for gold as the precious metal heads for its biggest annual drop in more than three decades. Bullion has fallen 24 percent in 2013 after rallying for 12 years, slumping to the lowest level since September 2010 last week after Fed Chairman Ben S. Bernanke said the central bank may slow its bond-buying program if the U.S. economy continues to improve.

 

--With assistance from Adam Haigh in Sydney, Claudia Carpenter, Paul Dobson, Lars Paulsson, Andrew Rummer, Shelley Smith and Alexis Xydias in London, Wojciech Moskwa in Warsaw and Weiyi Lim and Glenys Sim in Singapore. Editor: Michael P. Regan

 

To contact the reporters on this story: Richard Frost in Hong Kong at rfrost4@bloomberg.net; Inyoung Hwang in New York at ihwang7@bloomberg.net

 

To contact the editor responsible for this story: Michael P. Regan at mregan12@bloomberg.net

 

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