Stocks advance with crude as energy supply tightens

BLOOMBERG

U.S. and European stocks rose, as oil advanced on a softer forecast for a surplus from the International Energy Agency, sending currencies of commodity-exporting nations higher.
The S&P 500 rebounded from yesterday’s drop, while the Stoxx Europe 600 Index reversed a decline. Crude gained for a third straight day as the IEA said robust demand in India and other emerging nations would support demand for oil, while supply reductions around the world, from the U.S. and Canada to Nigeria, helped whittle away the global surplus. The yen weakened amid speculation of looser monetary policy, as Norway’s krone and the U.K.’s pound appreciated after the nations’ central banks left interest rates unchanged.
“We’d gone through such a period of weakness and uncertainty, and now we’re finally beginning to see some stability in prices, whether that’s commodity prices or general levels of currencies providing some reassurance to investors,” said Eric Wiegand, senior portfolio manager at the Private Client Reserve of U.S. Bank in New York, which oversees $125 billion. “We’re constructive over the intermediate and longer term, but in the near term, we’re not surprised by volatility. Not just some downside volatility like yesterday, but the potential for upside price movements as well.”
After dropping to as low as $26.05 a barrel in February, oil futures have rallied to close above $46 a barrel in New York on Wednesday, after supplies were tightened by declining U.S. drilling, wildfires in Canada and disruptions in Nigeria. That’s helping to stabilize global equities, which were roiled by losses in commodities in the first six weeks of the year and more recently by disappointing company earnings.

Stocks
The S&P 500 gained 0.3 percent at 9:30 a.m. in New York, after sinking 1 percent yesterday. Retail and apparel companies were the hardest hit on Wednesday posting their worst declines since the depths of the correction earlier this year as disappointing results from Macy’s Inc. to Walt Disney Co. heightened concern that American consumers remain reluctant to boost spending.
Equity futures maintained gains after a U.S. government report showed initial jobless claims rose 20,000 to 294,000 in the week ending May 7. The median forecast of economists called for a decline to 270,000.
The Stoxx Europe 600 Index added 0.6 percent. Energy companies posted the biggest gains in European equities, with Total SA and Royal Dutch Shell Plc gaining about 2 percent. Credit Agricole SA was among the biggest losers, slid 4.1 percent after posting a 71 percent drop in first-quarter profit.
Brazil’s Ibovespa rose 0.8 percent after the nation’s Senate voted to suspend President Dilma Rousseff from office to face an impeachment trial, ushering in a new government to take command of Latin America’s largest economy. Vice President Michel Temer prepared to name his cabinet that would be in place during Rousseff’s suspension.

Commodities
Crude rose 1.5 percent to $46.92 a barrel in New York. U.S. oil output declined to 8.8 million barrels a day last week, the lowest level since September 2014, while stockpiles fell 3.41 million barrels, a report showed Wednesday. Analysts surveyed had projected a 750,000-barrel increase in supplies.
Copper for three-month delivery on the London Metal Exchange gained 0.5 percent. Codelco, the world’s biggest producer, sees prices rising toward the end of next year as investment cuts hasten a re-balancing of global supply and demand. The LMEX Metals Index, which tracks the six main metals traded on the LME, gained 0.9 percent on Wednesday, rebounding from a one-month low.
Gold in the spot market was little changed. A World Gold Council report showed Thursday that global demand in the first quarter was the second-highest on record.

Bonds
U.K. 10-year government bonds fell after a 10-day run of gains that was their longest winning streak since at least 1989. U.K. securities have returned 5.6 percent in 2016, almost twice as much as their euro-area peers, according to Bloomberg World Bond Indexes.
Italian bonds also declined as the market absorbed 7.5 billion euros ($8.6 billion) of securities the government sold via auction on Thursday. The 10-year yield climbed three basis points to 1.5 percent.
The U.S. plans to sell 30-year debt on Thursday, after the notes handed investors a return of more than 10 percent this year. The long bonds yield 2.6 percent — more than any other benchmark maturity in the U.S., the U.K., Germany or Japan — and the securities are rallying as traders push back bets for when the Fed will raise interest rates.
Institutional investors that bid through primary dealers, known as indirect bidders, bought 73.5 percent of the 10-year notes the Treasury sold Wednesday, the most in data that go back to 2003. Japanese money managers boosted their holdings of U.S. sovereign debt by a record 4.95 trillion yen in March, based on Ministry of Finance data published Thursday.
The yield on the 10-year Treasury rose four basis points to 1.76 percent.

Currencies
The yen lost ground against all major counterparts. Bank of Japan Governor Haruhiko Kuroda said policy can be loosened further if needed. The yen was also undermined by oil’s gains, which boosted currencies of commodity-exporters such as the Mexican peso and Canadian dollar.
The krone was among the biggest gainers after Norway’s central bank left its benchmark rate at a record low as the government spends more of its vast oil wealth to keep the economy from slipping into a recession.
The pound advanced against the euro as Bank of England policy makers led by Governor Mark Carney voted unanimously to leave interest rates unchanged. Bank of America Merrill Lynch had said one or two of the nine-member panel could vote for a cut.
The yuan weakened 0.3 percent in Shanghai, narrowing its premium to the offshore exchange rate after the spread widened on Wednesday to 0.6 percent, the most since February. The divergence prompted speculation this week that the People’s Bank of China would intervene.