Commodities’ high weighs on bonds; Europe stocks slip

BLOOMBERG

A gauge of commodities headed for a five-month high, spurred by gains from metals to soy beans, and weighing on government bonds as the European Central Bank kept interest rates unchanged at its latest policy meeting.
Steel reinforcement bars jumped to a 19-month high in Shanghai, buoyed by an improving Chinese property market. Brent crude held near $46 a barrel after Iraq said talks to freeze output may occur next month and data showed U.S. production slipped. Commodity gains boosted the outlook for inflation, sending German bund yields to a four-week high. Sweden’s krona rose after the Riksbank expanded bond buying less than some investors expected. The euro advanced, while the Stoxx Europe Index extended declines.
The rebound in commodities, helped by supply cuts and signs of a pickup in Chinese growth, is easing concern that the world faced a period of extended low inflation, or even deflation. A revival in prices would be a boon to the ECB, which refrained from easing policy at Thursday’s review after unleashing unprecedented stimulus measures in March to revive growth. President Mario Draghi said at a briefing after the announcement that the central bank will step up stimulus if the outlook for the euro area worsens. In the U.S., a revival in the outlook for inflation may boost the case for the Federal Reserve to press ahead with raising interest rates.

Commodities
The Bloomberg Commodity Index advanced 0.7 percent at 1:56 p.m. in London, headed for its best close since Nov. 6. Steel rebar futures jumped for a fourth day on the Shanghai Futures Exchange, climbing as much as 7.5 percent to 2,787 yuan ($430) a metric ton. The product that’s used to strengthen concrete has jumped more than 50 percent so far in 2016. Iron ore with 62 percent content delivered to Qingdao rose to $70.46 a dry ton on Thursday, according to Metal Bulletin’s website.
Brent crude, the European benchmark, fluctuated near a five-month high following a 6.7 percent jump over the previous two sessions. It surged 4 percent on Wednesday as the Energy Information Administration reported that last week’s U.S. output was the lowest since October 2014. OPEC nations and some other major producers will meet in Russia, possibly in May, in an effort to agree on an output freeze, Iraq’s Deputy Oil Minister Fayyad Al-Nima said.
Silver jumped 3.8 percent, climbing for a third day after entering a bull market on Tuesday. Gold rose 1.9 percent and copper gained 1.2 percent. Soybeans for July delivery on the Chicago Board to Trade advanced 0.9 percent to $10.29 a bushel, the highest since July 2015, as rains in Argentina cut production in the world’s third-largest producer.

Stocks
The Stoxx 600 slipped 0.8 percent, after closing at its highest level since January. Miners erased an earlier advance, while banks posted the biggest gain of the gauge’s 19 industry groups. Carmakers rose, boosted by a 5.9 percent jump in Volkswagen AG after a person familiar with the matter said it agreed to set aside at least $10 billion to resolve civil claims by the U.S. government and lawsuits by American car owners over diesel vehicles rigged to cheat pollution controls.
Ericsson AB tumbled 12 percent as first-quarter sales missed analysts’ estimates. Pernod Ricard SA declined 7.4 percent after reporting a drop in sales in China. Swatch Group AG lost 1.9 percent and Cie. Financiere Richemont SA fell 2.1 percent as a report showed Swiss watch exports posted the biggest quarterly drop since 2009.
European shares have regained 15 percent from their February low. Germany’s DAX Index, among the most hit during the plunge at the start of the year, is rebounding faster than any major European equity gauges, coming close to entering a bull market.
Standard & Poor’s 500 Index futures were little changed, indicating U.S. equities will hold a four-month high as investors assess earnings for indications of the health of corporate America. General Motors Co., Microsoft Corp. and Visa Inc. are among companies announcing quarterly results Thursday.
The MSCI Asia Pacific Index was 1.3 percent higher. Japan’s Topix index climbed 2 percent to a two-month high, buoyed by prospects the Bank of Japan will boost stimulus at a monetary policy review next week. Mitsubishi Motors Corp. tumbled by the 20 percent daily limit in Tokyo after the automaker said it manipulated fuel-economy tests.
Benchmarks in Hong Kong and South Korea climbed to their highest levels of the year. The Shanghai Composite Index slid 0.7 percent to its low for the month after billionaire investor George Soros said Wednesday that China’s debt-fueled growth resembles the U.S. in 2007-08, before credit markets seized up and spurred a global recession.
BHP Billiton Ltd., the world’s biggest mining company, jumped 3.5 percent in Sydney. Energy producers led the MSCI Emerging Markets Index up 0.6 percent. The gauge has rallied 7.6 % this year, compared with a 2 percent advance in the MSCI World Index of developed countries. Russia’s Micex Index touched an intraday record-high before trading down 0.9 percent.

Currencies
The euro extended gains amid speculation Draghi is moving away from talking down the currency. One-month implied volatility, a measure of price swings based on options, for the euro against the dollar was at the lowest level since December 2014 as few analysts forecast policy surprises this month from either the Federal Reserve or the ECB.
Sweden’s krona rose against most of its 16 major counterparts and touched the strongest level since March 2015 against the euro. The Riksbank kept its benchmark repo rate at minus 0.5 percent. It will add 45 billion kronor ($5.6 billion) to its quantitative easing program, including inflation linked bonds, to be purchased during the second half of the year.

Bonds
The yield on 10-year U.S. Treasuries rose three basis points to 1.87 percent, after increasing nine basis points in the last three sessions. Inflows into inflation-indexed exchange-traded bond funds this year have already exceeded flows for all of 2015, suggesting investors are growing more bullish that inflation will climb toward the Fed’s 2 percent target.
European government bonds declined as commodity prices rose. Germany’s 10-year bund yield rose eight basis points, or 0.08 percentage point, to 0.23%. The cost of insuring corporate debt against default extended declines this week.