Commodities rise with stocks before Yellen speech; Pound falls

BLOOMBERG

Miners and energy companies led stocks higher and commodities advanced on speculation the Federal Reserve will hold off from raising interest rates this month. The pound slumped following polls that showed Britons favor exiting the European Union.
European stocks and S&P 500 futures advanced as the Bloomberg Commodity Index reached its highest level since October, with Brent crude above $50 a barrel and zinc extending its longest rally since 2013. Indonesia’s rupiah and Malaysia’s ringgit were the best performers among 31 major currencies after Friday’s U.S. payrolls report caused the Bloomberg Dollar Spot Index to tumble. The pound sank to a three-week low and Brexit concern also infected Spanish and Italian bonds and U.K. homebuilders, while boosting the Swiss franc.
Markets are being pulled in different directions, with worries over a slowing U.S. economy and British polls weighing on some assets, while a weaker dollar and chances the Fed will keep interest rates lower for longer supporting others. The U.S. economy created the fewest jobs last month in almost six years, and the odds of the Fed raising interest rates by July halved to 27 percent in the futures market. Fed Chair Janet Yellen is due to speak later on Monday in Philadelphia, the last scheduled appearance by a central bank official before the next policy meeting concludes on June 15.
“The disappointing U.S. jobs report on Friday means that a summer Fed rate hike is off the table,” Jens Pedersen, a commodities analyst at Danske Bank A/S, said by e-mail from Copenhagen. “That has reversed the upwards trend in the dollar, supporting commodities on a broader basis. The market will look for confirmation in Yellen’s speech later today.”

Commodities
The Bloomberg Commodity Index, which measures returns on raw materials rose 1.2 percent at 8:50 a.m. New York time, the highest since October 23, as oil and metals advanced.
Brent crude added 2.2 percent to $50.73 a barrel, after falling 0.7 percent last week as OPEC refrained from freezing output at a meeting in Vienna. The global oil surplus is shrinking faster than expected and has the potential to send prices as high as $60 a barrel this year, according to Ali Majed Al Mansoori, chairman of the Abu Dhabi Department of Economic Development. Saudi Arabia, the world’s largest exporter, raised pricing on most oil grades in July.
European coal prices surged to the highest in 10 months, buoyed by rising fuel prices and supply disruptions. Coal for delivery to northwest Europe next year gained for a ninth day on Monday, adding 3.2 percent to the highest since Aug. 7, according to broker data compiled by Bloomberg. The fuel has rallied 50 percent since February, when it plunged to the lowest since at least 2007.
Zinc climbed as much as 1.9 percent in London, rising for an eighth day to its highest level since July 2015, buoyed by speculation that mine supply cuts will lead to a worsening deficit. Nickel gained 2.3 percent and copper rose 0.7 percent.
Iron-ore futures in Dalian jumped 2.7 percent after the first decline in Chinese port inventories in three weeks. Stockpiles fell 0.4 percent last week to 100.25 million metric tons, according to data compiled by Shanghai Steelhome Information Technology Co.

Stocks
The Stoxx Europe 600 Index advanced 0.2 percent. Rio Tinto Group and Glencore Plc led a gauge of mining companies to the best performance of the 19 industry groups on the gauge as commodities surged. BP Plc pushed oil stocks higher as crude rebounded.
The U.K.’s FTSE 100 Index climbed the most among major western-European markets, gaining 1 percent, as miners jumped and the pound weakened after the Brexit polls.
“Stocks are flattish today because people are interpreting there won’t be a rate hike after the jobs report Friday and for me that’s very complacent because we shouldn’t forget the longer-term trend,” said Michael Woischneck, who oversees about 300 million euros ($341 million) at Lampe Asset Management in Dusseldorf, Germany. “Oil and commodities are better again and that’s also helping stocks, but it will be a very volatile week with the Brexit vote coming closer and closer.”
Futures on the S&P 500 advanced 0.3. Shares fell Friday after the disappointing U.S. jobs data cast doubt on the strength of the world’s biggest economy and on whether the Fed will raise rates at its next meeting.
The MSCI Emerging Markets Index rose as much as 1 percent to a one-month high, advancing for a third day and climbing above its 50-day moving average. Benchmark gauges in Russia and the Philippines jumped over 1 percent. South Korea’s market is shut for a holiday.
The Hang Seng China Enterprises Index of mainland companies traded in Hong Kong gained 0.6 percent after falling as much as 0.7 percent. The Shanghai Composite Index slipped for the first time in three days. Investors are switching attention to the health of the economy, with foreign reserves, trade and industrial production figures to be announced on Tuesday through Thursday. Mainland markets will be closed Thursday and Friday for public holidays.

Currencies
The pound weakened 0.8 percent to $1.4403, paring losses after dropping as much as 1.1 percent on a YouGov Plc poll for television company ITV Plc that found 45 percent would vote ‘Leave,’ compared with 41 percent opting to ‘Remain.’ A survey by global market research company TNS showed 43 percent backing an EU exit, and 41 percent wanting to stay in. An online poll showed 48 percent supported quitting the trading bloc, while 43 percent were in favor of remaining and 9 percent were undecided, according to ICM.
“If there’s any one other currency investors may want to go short on besides paring long dollar positions that would be sterling,” said Vishnu Varathan, a Singapore-based economist at Mizuho Bank Ltd. “There’s a binary event risk of much greater proportions than just a policy move.”
The Bloomberg Dollar Spot Index was little changed, after tumbling 1.5 percent in the last session following the U.S. jobs report. Payrolls climbed by 38,000 in May, less than the most pessimistic estimate in a Bloomberg survey.
The yen weakened 0.6 percent to 107.11 per dollar, after a 2.2 percent surge on Friday that marked its biggest gain since April. The euro fell 0.1 percent, after a 1.9 percent gain on Friday that was biggest jump of the year. The Swiss franc added 0.5 percent against the euro, the biggest jump since May 12.
The MSCI Emerging Markets Currency Index rose 0.9 percent. Indonesia’s rupiah climbed 1.6 percent, and Malaysia’s ringgit strengthened 1.2 percent. China’s yuan fell to its lowest level against a basket of peers since November 2014 after the central bank strengthened the fixing by less than expected following a slump in the dollar.
“It seems to me that the Chinese authorities still have a weakening bias in the currency,” said Zhou Hao, a Singapore-based economist at Commerzbank AG.

Bonds
Government bonds from the euro region’s periphery declined relative to benchmark German bunds after the latest Brexit polls. The political risk doesn’t end on June 23 for those nations. Spain plans to hold fresh elections on June 26, while preliminary results from weekend elections in Italy show the anti-establishment Five Star Movement’s Virginia Raggi leads the first round of local elections in Rome.
With the U.K. referendum and Spanish general elections approaching, this “should in general add some nervousness to the markets,” said Christian Lenk, a fixed-income strategist at DZ Bank AG in Frankfurt. “That’s helping to support stronger credits in the euro zone. It’s a pattern that is quite likely to continue in the upcoming days or weeks.”
Spain’s 10-year bond yield rose five basis points to 1.51 percent. The yield on Italian debt due in June 2026 climbed seven basis points to 1.49 percent.
Treasuries declined, pushing the 10-year yield two basis points higher to 1.72 percent. The yield on the Bloomberg Global Developed Sovereign Bond Index had dropped to 0.62 percent on Friday, the least in data going back to 2010. Australia’s 10-year yield fell to an all-time low of 2.15 percent on Monday. Japan’s slid to negative 0.125 percent, approaching a record minus 0.135 percent.