By Shiyin Chen and Stephen Kirkland - Oct 27, 2011 6:42 PM GMT+0700
Oct. 27 (Bloomberg) -- James Hughes, a senior market analyst at Alpari Ltd., talks about steps by European leaders to solve the debt crisis and the outlook for the euro. Hughes, speaking from London with Owen Thomas on Bloomberg Television's "Countdown," also discusses Royal Dutch Shell Plc's and Bayer AG's third-quarter profit reported today. (Source: Bloomberg)
Stocks climbed to an eight-week high and the euro strengthened, while Treasuries and bunds fell as European leaders agreed to expand a bailout fund to stem the region’s debt crisis. Metals and oil led a rally in commodities.
The MSCI All-Country World Index gained 2 percent at 7:40 a.m. in New York as benchmark gauges in France and Italy jumped more than 4 percent to the highest levels in almost three months. Standard & Poor’s 500 Index futures added 2.1 percent. While Italian and Spanish bonds rallied, yields remained near levels from two weeks ago. The euro appreciated above $1.40 for the first time since Sept. 8, and the cost of insuring European debt fell to a seven-week low. The 10-year Treasury yield rose 11 basis points. Copper gained 4.6 percent, while gold dropped.
French President Nicolas Sarkozy said the euro region’s bailout fund will be leveraged by four to five times, and investors have agreed to a voluntary writedown of 50 percent on Greek debt. Sarkozy is due to speak to Chinese leader Hu Jintao today and said he’d welcome support from the Asian nation in the bailout effort. U.S. data today may show the world’s largest economy expanded last quarter at the fastest pace this year.
“Given the extent of what needed to be achieved here and the disparate views, one cannot fail but to be impressed that the EU officials have managed to carve out this plan,” Charles Diebel, head of market strategy at Lloyds Banking Group Plc in London, said in a research note. “The announcement is enough to buy some time and generate a moderate risk-on phase.”
Banks Rally
The Stoxx Europe 600 Index climbed 3.2 percent to a 12-week high as banks led gains. BNP Paribas SA and Deutsche Bank AG, the biggest lenders in France and Germany, advanced more than 10 percent. BASF SE rallied 4.9 percent as the world’s largest chemicals maker reported profit that beat analyst estimates. Ericsson AB rose 4.7 percent as Sony Corp. agreed to buy its 50 percent stake in their joint mobile-phone venture.
The bund yield jumped as high as 2.20 percent, rising to the most since Oct. 17, while the 10-year French yield declined five basis points, dropping for the third consecutive day. That drove the difference in yield with German debt down by 11 basis points to 92 basis points, after rising on Oct. 21 to 121 basis points, the most since 1992. The spread is still 21 basis points higher this month.
Italian 10-year yields slid 12 basis points, or 0.12 percentage point, to 5.81 percent, the lowest since Oct. 17. The yield on the Greek two-year note tumbled 109 basis points to 78.68 percent, a three-day low.
Bond Risk
The Markit iTraxx SovX Western Europe Index of swaps on 15 governments dropped 17 basis points to 317, the lowest since Sept. 5. Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings decreased 35 basis points to 685 basis points, the lowest since Sept. 1, according to JPMorgan Chase & Co.
Futures signaled the S&P 500 may extend yesterday’s 1.1 percent rally. U.S. gross domestic product probably expanded 2.5 percent in the third quarter, according to the median forecast of economists surveyed by Bloomberg before today’s Commerce Department report. Other data may show pending home sales gained in September.
The 10-year Treasury yield climbed as high as 2.27 percent, while the seven-year yield increased four basis points before the U.S. sells $29 billion of the securities, the last of three auctions this week totaling $99 billion.
Federal Reserve Bank of New York President William C. Dudley said on Oct. 24 that policy makers have the option of starting a third round of asset purchases to stimulate growth. Bank of England Markets Director Paul Fisher said yesterday expanding monetary stimulus by 75 billion pounds ($120 billion) this month was the minimum amount needed to shore up an economy that may already be shrinking.
Dollar Slips
The euro climbed as high as $1.4038, and advanced 1 percent versus the yen. The Dollar Index, which tracks the U.S. currency against those of six trading partners, slid 0.8 percent to the least since Sept. 8.
The S&P GSCI index of 24 commodities gained 1.9 percent. Nickel jumped 3.9 percent and copper rose to $8,032 a metric ton. Gold fell 0.7 percent to $1,712 an ounce, after gaining 6.4 percent the previous four days. Oil in New York advanced 2.6 percent to $92.56 a barrel.
The MSCI Emerging Markets Index jumped 2.4 percent to a seven-week high. Russia’s Micex climbed 1.9 percent, Hungary’s BUX gained 3.3 percent and the Hang Seng China Enterprises Index of mainland companies listed in Hong Kong rallied 5.1 percent. Benchmark gauges in Poland, South Africa, Turkey, Indonesia, Thailand and South Korea advanced at least 1.5 percent.
To contact the reporters on this story: Stephen Kirkland in London at skirkland@bloomberg.net; Shiyin Chen in Singapore at schen37@bloomberg.net;
To contact the editor responsible for this story: Justin Carrigan at jcarrigan@bloomberg.net
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