Global stocks erase Brexit losses; Investors bail on bonds, yen

Bloomberg

Global stocks erased losses sparked by the U.K.’s secession vote, the Dow Jones Industrial Average topped its closing record and commodities joined a rally in risk assets on the prospect of stimulus in major economies. Government bonds sank with the yen.
The MSCI All-Country World Index reached its highest level since June 23, while the S&P 500 Index extended an all-time high and the 30-member Dow headed for a closing record. The yen had its biggest two-day slide since 2014 after Japanese Prime Minister Shinzo Abe vowed to speed up efforts to defeat deflation. The pound rose the most since the secession vote as Home Secretary Theresa May prepared to take over as the U.K.’s next prime minister. Italian banks led European lenders higher. U.S. crude rebounded from a two month low.
Global equities are almost back to where they were when the U.K. voted for Brexit. Since then, futures traders have cut wagers on higher interest rates from the Federal Reserve while Abe won an election and said he would order ministers to begin compiling fresh stimulus. The majority of economists expect the Bank of England to cut interest rates this week and traders are betting there will be further monetary easing in the euro area this year.
“Risk appetite is in the ascendancy, and as a consequence we are seeing higher-yielding currencies rally and haven currencies including the yen decline,” said Jeremy Stretch, London-based head of foreign-exchange strategy at Canadian Imperial Bank of Commerce. “It’s a case of hopes for additional Japanese fiscal stimulus. The U.K. has seen some political risk removed.”

Stocks
The S&P 500 added 0.6 percent to 2,150.30 at 9:39 a.m. in New York, following the gauge’s 0.3 percent advance to an all-time high on bets of a brighter economic outlook after Friday’s jobs report. The rally has pushed its valuation above that of global shares and its own three-year average. It had gone 285 days without setting a new record, the longest stretch outside a bear market since 1985.
Alcoa Inc. rose on Tuesday, after the company reported profit for the second quarter that topped analysts’ estimates. Companies in the S&P 500 are forecast to report a fifth straight quarter of earnings contraction.
The Stoxx Europe 600 Index rose 1 percent, after surging 4.4 percent over the last three trading days. Japan’s Topix climbed 2.4 percent and the MSCI Asia Pacific Index gained 1.2 percent.
Banks rallied, led by Italian lenders, after German Chancellor Angela Merkel said she doesn’t see the firms causing a broader crisis. Daimler AG jumped 4.7 percent, the most since August 2015 on a closing basis, after posting a 5.6 percent increase in adjusted earnings. The U.K.’s FTSE 100 Index reached its highest level since August 2015
The MSCI Emerging Markets Index rose for a fourth day, adding 0.9 percent to the highest intraday level since April. Thailand’s SET Index edged up 0.4 percent, extending its increase from a January low this year to 20 percent

Currencies
The yen extended its steepest decline since October 2014, as investors awaited details of the stimulus package promised by Abe.
Japan’s currency fell 1 percent to 103.85 per dollar, adding to a 2.3 percent decline from the day before.
The pound rose 1.1 percent as May’s confirmation as the only remaining candidate to replace David Cameron removed a layer of political uncertainty.
The MSCI Emerging Markets Currency Index added 0.1 percent. Mexico’s peso led gains, advancing 0.7 percent. South Africa’s rand climbed 0.6 percent. South Africa’s rand gained the most among emerging-market currencies as investors bought the nation’s bonds and shares on expectations developed-nation central banks will extend monetary stimulus.

Commodities
Crude oil climbed 2.6 percent to $45.92 a barrel in New York before data forecast to show U.S. inventories fell for an eighth week. Prices rose as a weaker dollar boosted the appeal of commodities while further disruptions worsened supply problems in Nigeria.
Nickel jumped 2.9 percent to $10,340 a metric ton in London amid speculation of supply cuts in the Philippines, the biggest ore producer. Copper, lead and zinc all gained more than 1 percent.

Bonds
The yield on Treasuries due in a decade increased five basis points to 1.48 percent, after climbing seven basis points on Monday as an auction of three-year notes attracted the weakest demand since 2009. Gains last week week pushed 10- and 30-year yields to record lows.
The U.S. is due to sell $20 billion of 10-year notes Tuesday, followed by $12 billion of 30-year bonds Wednesday.
Benchmark German 10-year bonds, perceived to be among the safest debt securities in the euro area, declined for a second day, pushing the yield up by four basis points to minus 0.12 percent. Yields on French securities with a similar due date increased four basis points to 0.16 percent. U.K. 10-year yields rose two basis points to 0.77 percent.
One risk of low interest rates is “a snap back in yields because of changes in growth and inflation expectations,” Bank of England Governor Mark Carney said in testimony to U.K. lawmakers on Tuesday. “A variety of factors could cause a snap back; you have to make sure the institutions are prepared both in capital and risk management for that tail event.”
Europe’s bond markets were set for the busiest day of issuance in at least five weeks. Sellers included the European Stability Mechanism and BNP Paribas SA.