Euro Strengthens, S&P 500 Futures Jump

By Shiyin Chen - Oct 10, 2011 1:06 PM GMT+0700
Enlarge image

The Euro rose 0.5 percent against both the dollar and yen as of 11:03 a.m. in Hong Kong. Photographer: Hannelore Foerster/Bloomberg

Play Video

Oct. 10 (Bloomberg) -- Hugh Young, group head of equities at Aberdeen Asset Management, talks about Europe's debt problems, Dexia SA’s breakup outlook and his investment strategy. Young speaks with Rishaad Salamat on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)

The euro strengthened, Standard & Poor’s 500 Index futures rose, and Asian stocks and commodities climbed a fourth day after German and French leaders pledged to devise a plan to stem Europe’s debt crisis in three weeks and as the U.S. showed signs of sustaining its economic recovery.

Europe’s 17-nation currency advanced 0.7 percent against both the dollar and yen as of 2:02 p.m. in Hong Kong. S&P 500 futures added 1 percent and Euro Stoxx 50 Index futures rallied 1.1 percent. The MSCI Asia Pacific excluding Japan Index gained 0.4 percent, extending a three-day, 7.9 percent jump that was the most since 2009. S&P’s GSCI Index of raw materials increased 0.4 percent, paced by wheat and silver. Bond default risk slid.

German Chancellor Angela Merkel and French President Nicolas Sarkozy will deliver a plan to recapitalize European banks and address the Greek debt crisis by the Nov. 3 Group of 20 summit. Belgium will buy part of failing Dexia SA and provide security for depositors. Goldman Sachs Group Inc. and Macroeconomic Advisers LLC raised their U.S. growth forecasts in the third quarter, after an Oct. 7 report showing a 103,000 rise in payrolls capped a string of stronger-than-projected data.

“The market was met with some above-expectations data, as well as some warm and fuzzy talk out of the EU about the banking sector, so ultimately the rally will likely continue” for the next few weeks, Nick Maroutsos, who oversees the equivalent of about $4 billion at Sydney-based Kapstream Capital, said in a Bloomberg Television interview.

‘Everything Necessary’

The euro traded at $1.3471 and rose to 103.40 yen after Merkel said European leaders will do “everything necessary” to ensure that banks have enough capital. The shared currency weakened on Oct. 7 after Fitch Ratings lowered Spain’s foreign and local currency long-term issuer default ratings to AA- from AA+ and cut Italy’s ratings to A+ from AA-, citing an “intensification” of the region’s sovereign-debt crisis.

Belgium’s purchase of the local consumer-lending unit of Dexia will end a 15-year cross-border experiment with France after the European debt crisis deepened. The Belgian federal government will pay 4 billion euros ($5.4 billion) for the division and guarantee 60 percent of a so-called bad bank to be set up for Dexia’s troubled assets, Finance Minister Didier Reynders said at a press conference today in Brussels.

The Australian dollar strengthened 0.7 percent to 98.34 U.S. cents, while New Zealand’s currency climbed 0.6 percent to 77.41 U.S. cents. The ringgit strengthened for a fifth day, rising 0.8 percent to 3.1370 per dollar after an Oct. 7 report showed Malaysian exports rose in August at the fastest pace in four months and Prime Minister Najib Razak said economic growth may quicken in 2012.

U.S. Economy

Futures indicate the S&P 500 may rebound from its 0.8 percent decline on Oct. 7. The gauge had climbed as much as 0.6 percent after the Labor Department report on September payrolls, which topped the median forecast in a Bloomberg News survey of economists for a rise of 60,000. Treasuries fell on Oct. 7, pushing 10-year note yields up last week by the most since July.

“The payroll number takes some of the negativity away from the U.S. economic outlook but the euro zone will continue to dominate sentiment,” said Imre Speizer, a strategist in Auckland at Westpac Banking Corp., Australia’s second-largest lender.

Data later this week may show U.S. retail sales increased in September at the fastest pace in six months, helping to ease concern the U.S. recovery is faltering. Economists at Goldman Sachs and Macroeconomic Advisers lifted their third-quarter growth forecasts to 2.5 percent from about 2 percent.

Earnings

Earnings per share for the S&P 500, excluding financial companies, may have increased 14 percent in the third quarter, the smallest gain since the end of 2009, analysts’ estimates compiled by Bloomberg show. Alcoa Inc., the biggest U.S. aluminum producer, will report earnings Oct. 11 after U.S. markets close, the first member of the Dow Jones Industrial Average to do so for the third quarter.

Investors are increasing bearish trades around the world by the most in at least five years, convinced the lowest valuations since 2009 will prove no barrier to losses. Borrowed shares, an indication of short selling, climbed to 11.6 percent of stock last month from 9.5 percent in July, the biggest increase since at least 2006, according to information compiled for Bloomberg by Data Explorers, a London-based research firm.

Shares Fall

About five shares climbed for every four that fell on MSCI’s Asia Pacific ex-Japan Index. Financial markets in Japan and Taiwan are closed for holidays today. South Korea’s Kospi Index jumped 0.5 percent, Australia’s S&P/ASX 200 Index added 0.9 percent. The Shanghai Composite Index fell 0.5 percent after earlier rising 0.4 percent in China, where financial markets opened for trading following a one-week holiday.

Agile Property Holdings Ltd. slumped 13 percent, the biggest decliner on the MSCI regional index, after housing sales slid during China’s week-long holiday. Hanjin Heavy Industries & Construction Co. jumped 15 percent in Seoul after Tong Yang Securities Inc. said the shipbuilder may resolve disputes over job cuts with workers.

Oil for November delivery rose 0.6 percent to $83.50 a barrel on the New York Mercantile Exchange, extending a three- day, 9.7 percent jump. December-delivery wheat rallied 2.3 percent to $6.2125 a bushel, halting two days of losses, while soybeans advanced 2 percent to $11.8175 a bushel. Cash silver added 1.6 percent to $31.66 an ounce.

The cost of insuring Asia-Pacific corporate and sovereign bonds against non-payment fell, with the Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan dropping 4 basis points to 229.5 basis points, Royal Bank of Scotland Group Plc prices show. That’s on track for the lowest level since Sept. 28, according to data provider CMA.

To contact the reporter on this story: Shiyin Chen in Singapore at schen37@bloomberg.net.

To contact the editor responsible for this story: Richard Dobson at rdobson4@bloomberg.net.