Stocks Advance, Commodities Snap Three-Day Slump as Oil Rallies
Oct. 5 (Bloomberg) -- Stocks rose and commodities snapped a three-day slump as U.S. economic data topped estimates and optimism grew European leaders will recapitalize banks. Energy shares climbed as oil rallied on an unexpected drop in supplies.
The Standard & Poor's 500 Index climbed 1.3 percent to 1,138.23 at 2 p.m. in New York, adding to yesterday's 2.3 percent surge. The Stoxx Europe 600 Index climbed 3.1 percent, halting a three-day tumble. The S&P GSCI Index of commodities increased 2.6 percent as oil climbed 4.5 percent to $79.10 a barrel, rebounding from a 7.9 percent plunge over the previous three sessions. Treasuries fell, sending the 10-year note's yield up eight basis points to 1.91 percent.
Reports depicting faster-than-forecast growth in payrolls and service industries and rising fuel demand tempered concern the economic recovery was in jeopardy. European Union officials are working on plans to boost bank capital to contain the debt crisis, the International Monetary Fund said, a day after a Financial Times report describing the discussions triggered a 4.1 percent surge in the S&P 500 in the final hour of trading.
"Fuel demand has been holding up better than expected in recent weeks," said Kyle Cooper, director of research for IAF Advisors in Houston. "It does signal that demand it is holding up well and it doesn't signal a recession."
Producers of energy and raw materials led the S&P 500's gain today, with gauges of both groups rising at least 1.4 percent. Chevron Corp. climbed 2.7 percent and Freeport-McMoRan Copper & Gold Inc. surged 5.5 percent to pace the gains. Crude oil posted the biggest advance among commodities tracked by the S&P GSCI, with 20 of 24 raw materials rising.
Financial shares were down 0.3 percent as a group, after falling as much as 2.3 percent earlier and rallying 4.1 percent yesterday.
Economic Data
U.S. stock futures gained before the open of exchanges after companies in the U.S. added 91,000 jobs in September, according to data from ADP Employer Services, topping the median forecast of economists surveyed by Bloomberg News for an advance of 75,000. A Labor Department report in two days is forecast to show a 90,000 increase in private jobs and a net 60,000 gain in non-farm payrolls, according to the median economist estimates in a survey, with the unemployment rate projected to remain at 9.1 percent.
The Institute for Supply Management��s non-manufacturing index fell to 53 from 53.3 in August. The median forecast of 75 economists surveyed by Bloomberg News was for a drop to 52.8. A reading of 50 is the dividing line between expansion and contraction in services, which cover about 90 percent of the economy. Orders picked up, the report showed.
'Tortoise-Like'
"Those are positive," Abigail Huffman, who helps oversee $163 billion as director of research at Russell Investments in New York, said of today's economic data. "It's a slow moving economy that's moving forward and we're seeing good data points. With this tortoise-like economy the trends are positive but they're just not positive enough for the market to sustain an advance."
The S&P 500 closed 2.3 percent higher yesterday following the FT report. It was the 10th time since 1985 that the index posted a loss of 1 percent or more at 3 p.m. and was up when the market closed, according to data compiled by Bespoke Investment Group LLC in Harrison, New York. The measure declined the next day eight times, with losses averaging 1.3 percent, the data show.
Alcoa Inc., the largest U.S. aluminum producer, will mark the unofficial start of the earnings-reporting season when it reports results on Oct. 11. Third-quarter profits for S&P 500 companies are projected to have grown 13 percent, according to analyst forecast compiled by Bloomberg, down from an estimate of 17 percent when the index traded at a three-year high at the end of April.
'Surprise to the Upside'
Brian Belski, chief investment strategist at Oppenheimer & Co. in New York, predicted a "nice year-end rally" in stocks after profits come in higher than analysts' estimated.
"Earnings will surprise to the upside, earnings estimates have been slashed too much," Belski said on Bloomberg Television's "Inside Track With Deirdre Bolton and Erik Schatzker." "Corporate America has gone through so much structural reform in the last 10 or 12 years that they continue to be positioned to under-promise, over-deliver."
Banks in the Stoxx 600 climbed 4.6 percent as a group and contributed the most to the index's advance. Dexia SA, the Belgian lender that has slumped 59 percent this year, snapped a four-day plunge after France and Belgium said a "bad bank" will be set up to hold its troubled assets. The shares rose 1.3 percent, paring a rally of as much as 10 percent after two people with knowledge of the talks said the plan may leave Dexia holding the worst assets.
BNP Paribas, SocGen
BNP Paribas SA and Societe Generale SA, France's biggest lenders, climbed more than 8 percent. Rio Tinto Group led mining companies higher. European Aeronautic, Defence & Space Co. rose almost 6 percent after saying 2011 will be a "very good" year.
A measure of how much European banks pay to fund in dollars fell. The one-year cross-currency basis swap, the rate banks pay to convert euro interest payments into dollars, was at 72 basis points below the euro interbank offered rate as of 5 p.m. in London, down from 75 basis points yesterday. A basis point is 0.01 percentage point.
EU ministers have a "sense of urgency" and a "shared view" of the need for a "concerted, coordinated approach in Europe," EU Commissioner for Economic Affairs Olli Rehn said, according to the FT. "Capital positions of European banks must be reinforced to provide additional safety margins and thus reduce uncertainty," the newspaper quoted him as saying.
Rehn "doesn't speak of a concrete plan in hand," his spokesman, Amadeu Altafaj, told reporters in Brussels today. "He speaks of an initiative, of discussions in progress and he pleads for a European approach."
'Gut Feel'
"My gut feel is that the European situation still might need to get worse to provoke the type of response the market really wants but such a day is no doubt getting closer," Jim Reid, head of fundamental strategy at Deutsche Bank AG in London, wrote in a note to investors.
Ten-year Italian bond yields increased three basis points to 5.53 percent. Moody's Investors Service cut Italy's rating three levels to A2 from Aa2, with a negative outlook, and said other European countries rated below the top Aaa level may face downgrades. S&P lowered Italy's grade on Sept. 20 for the first time in five years.
Signs that the region's debt crisis is hampering growth have prompted speculation the ECB will lower borrowing costs at a policy meeting tomorrow. Eleven of 52 economists surveyed by Bloomberg said it will cut its benchmark interest rate by at least a quarter-percentage point from the current 1.5 percent. The others expect no change.
Dollar Index
The Dollar Index, which tracks the U.S. currency against those of six trading partners, fell 0.6 percent to halt a five day increase. The pound was 0.4 percent lower versus the dollar after a report showed U.K. economic growth slowed by more than initially estimated in the second quarter.
The MSCI Asia Pacific Index fell 0.3 percent and is down 6 percent in four days. Japan's Nikkei 225 Stock Average retreated 0.9 percent, paced by a 4 percent drop in Fast Retailing Co., after Asia's biggest apparel chain said same-store sales at its Uniqlo casual clothing stores in Japan fell 10.7 percent in September from a year earlier.
The MSCI Emerging Markets Index rose 0.5 percent.
To contact the reporters on this story: Rita Nazareth in New York at rnazareth@bloomberg.net Mark Shenk in New York at mshenk1@bloomberg.net
To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net
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