European stocks advance with commodities as Euro, gold dip

BLOOMBERG

Stocks traders put declines in Asia behind them as European markets rose with U.S. index futures and commodities. Government bonds fell, gold slid and the euro weakened.
European shares advanced for the first time in three days on speculation the region’s central bank will ramp up monetary stimulus on Thursday. A gauge of raw materials rebounded from its biggest selloff in a month, buoyed by gains in oil and copper. A selloff in Japanese government bonds dragged Treasuries and German bunds lower, gold fell a second day and the euro dropped versus most of its major peers.
Economists surveyed by Bloomberg forecast that the ECB will deliver a package of easing measures in its attempts to bolster price growth. That’s offering support to European markets after a slide in China’s exports tempered a three-week rally that had restored almost $5 trillion to the value of equities worldwide. The International Monetary Fund said on Tuesday that volatile financial markets and low commodity prices are heightening risks for the global economy, while DoubleLine Capital’s Jeffrey Gundlach said betting on stocks is a “big losing proposition.”
“There’s talk of rates cuts, increasing the size of the asset-purchase program, and expanding the range of products that the ECB will buy,” said Daniel Murray, the London-based head of research at EFG Asset Management. “Let’s see tomorrow how good Draghi is at playing the market: he has built up expectations before and found them hard to meet.” The Stoxx Europe 600 Index added 0.8 percent at 10:58 a.m. in London. The Bloomberg Commodity Index rose 0.5 percent. The euro fell 0.5 percent to $1.0962.

Stocks
Prudential Plc led European insurance stocks higher with a 2.6 percent advance after reporting a 19 percent increase in pretax profit amid an increase in Asian sales. Glencore Plc helped push miners higher after the Stoxx 600 Basic Resource Index tumbled 9.3 percent on Tuesday, the biggest drop since 2008.
Volkswagen AG retreated 0.6 percent, taking its losses this week to almost 8 percent as prosecutors across Europe stepped up their investigations into the carmaker’s emissions scandal.
Standard & Poor’s 500 Index futures gained 0.3 percent, indicating U.S. equities will rebound after a selloff in energy companies on Tuesday dragged the gauge to its biggest drop in two weeks. The index has about 2 percent upside and 20 percent downside, making for a lousy risk-reward trade-off, according to money manager Gundlach, who runs the $56 billion DoubleLine Total Return Bond Fund. The recent rebound was a “bear market rally,” he said.
Asian markets showed less optimism than those in Europe. The MSCI Asia Pacific Index lost 0.3 percent as measures of materials and energy stocks sank about 1.3 percent. Jiangxi Copper Co. — China’s biggest smelter — tumbled 5.5 percent in Hong Kong, trimming this month’s advance to 18 percent. Japan’s Topix dropped for a third day, led by shipping stocks after Mitsubishi UFJ Morgan Stanley lowered price targets for the sector’s three biggest companies. The Shanghai Composite Index slid 1.3 percent.
“As much as I would like to agree with the positive sentiment, several key macro headwinds remain on point and the drivers of the past week are now showing signs of topping out,” Evan Lucas, a markets strategist in Melbourne at IG Ltd., said in an e-mail to clients. “Markets will remain volatile and trade in a directionless manner.”

Commodities
Crude oil rose 1.4 percent to $37.00 a barrel in New York, after a 3.7 percent slide on Tuesday that marked its biggest loss in almost four weeks. The Energy Information Administration cut its U.S. output forecast through 2017 as drillers idle rigs to conserve cash. That helped counter an increase in inventories, which rose by 4.4 million barrels last week, the industry-funded American Petroleum Institute was said to report. Government data Wednesday is forecast to show supplies increased.
Nickel rebounded 2.6 percent after tumbling 8.5 percent on Tuesday, while copper gained 1 percent. Copper demand won’t catch up with supply until 2017, according to a senior official at Freeport-McMoRan Inc., the largest publicly traded producer of the metal.
Gold fell 0.4 percent, extending Tuesday’s retreat from a one-year high.
The Bloomberg Commodity Index’s rebound comes after a 1.1 percent loss in the last session. It’s dropped 21 percent in the past year.
“The IMF’s latest reading of the global economy shows once again a weakening baseline,” IMF First Deputy Managing Director David Lipton said Tuesday in Washington. “Moreover, risks have increased further, with volatile financial markets and low commodity prices creating fresh concerns about the health of the global economy.”

Currencies
The euro slid 0.8 percent to 123.08 yen. Japan’s currency, which typically moves in the opposite direction to the nation’s stocks, is the best performer among major peers this year.
South Korea’s won led declines among Asian currencies, dropping 0.8 percent against the dollar. The nation’s central bank will review monetary policy on Thursday and seven out of 18 economists surveyed by Bloomberg forecast the benchmark interest rate will be cut from a record-low 1.5 percent. Canada decides on interest rates on Wednesday, and New Zealand’s central bank also has a policy meeting this week.

Emerging Markets
Russia’s ruble led losses against the dollar with a 1 percent drop. The ruble pared the biggest gain in emerging markets in the past month as the currency of the world’s largest energy exporter caught up with a drop in crude prices after public holidays. Turkey’s lira strengthened for a second day, rising 0.2 percent.
Raw material and energy shares pulled emerging-market stocks lower. The MSCI Emerging Markets Index fell 0.3 percent, trimming its advance since the start of the month to 6.1 percent.

Bonds
U.S. and Japanese bonds fell as record-low yields in the Asian nation curbed demand for government debt. The move is a reversal from Tuesday, when Japan ignited a global debt rally as its benchmark 10-year yield slid to an unprecedented minus 0.1 percent.
“Would you like to buy at negative 0.1 percent?” said Kazuaki Oh’E, the head of fixed income at CIBC World Markets Japan Inc. in Tokyo. The level is too expensive for most investors, he said.
Yields on 10-year Treasuries rose four basis points to 1.87 percent, while those on Japanese notes increased as much as eight basis points to minus 0.015 percent. Japan’s sovereign debt returned more than 5 percent over the past three months, the best performance among 26 developed markets tracked by Bloomberg.
German 10-year bunds halted a two-day advance, with the yield rising two basis points to 0.2 percent.
Warren Buffett’s Berkshire Hathaway Inc. was offering euro-denominated bonds following a company-record $9 billion debt sale on Tuesday. The single-currency notes, maturing in as many as 12 years, will help refinance loans used to buy Precision Castparts Corp., according to a person familiar with the matter, who asked not to be identified because they aren’t authorized to speak publicly.