Stocks climb with copper as Brexit-induced volatility subsides

Bloomberg

Wherever you look in global financial markets, signs are emerging that the fallout from Britain’s vote to leave the European Union is under control.
Global stocks rose a fifth day, reclaiming almost $4 trillion in value lost in the days following the U.K.’s referendum as speculation grows that central banks will boost stimulus at the same time signs of economic growth emerge. U.S. equities extended records, while emerging-market shares hit an eight-month high. Havens such as the yen and government bonds have given back much of the gains since the vote.
Calm is returning to global markets as investors grow more confident the Brexit vote won’t hamper worldwide growth. Economists predict the Bank of England will cut interest rates Thursday, while Japan’s prime minister ordered more fiscal stimulus. Traders don’t expect higher U.S. rates this year, even though Federal Reserve Bank of St. Louis President James Bullard says he expects virtually no impact on the U.S. from Brexit. The mark on the U.K. is more enduring, with sterling about 11 percent weaker since the vote.
36 South Capital Advisors, a London-based volatility hedge fund, was surprised at how rapidly markets settled, according to Chief Investment Officer Richard Haworth.
“This is the strangest environment I’ve seen in 30 years,” Haworth said. “I had a sneaking suspicion that Brexit could have been the butterfly’s wing that created a hurricane down the line. But maybe, maybe not.”
The MSCI All-Country World Index added 0.4 percent at 9:31 a.m. in New York, leaving it 0.4 percent stronger than on the day before the referendum. Bank of America Merrill Lynch’s GFSI Market Risk Index, a measure of future price swings implied by option markets in global equities, rates, currencies and commodities, has fallen to the lowest since June 7.

Stocks
The S&P 500 Index rose 0.2 percent, putting the benchmark on track for a third straight record close. The CBOE Volatility Index, the measure of future volatility in U.S. stocks, has almost halved since June 24, when the shock vote caused the wildest swings since August 2011. A similar gauge of European stock volatility fell on Tuesday to the lowest level since May.
The Stoxx Europe 600 Index added 0.3 percent, rising for a fifth day in the longest winning streak since the Brexit vote. The gauge is within 10 points of erasing its losses after the June 23 referendum. An index of European commodity companies headed for the highest level since August as a rally in copper helped Glencore Plc and BHP Billiton Plc rise at least 2.3 percent each.
The MSCI Emerging Markets Index climbed 0.4 percent. Hong Kong’s Hang Seng China Enterprises Index advanced 0.6 percent, its third day of gains. China’s exports and imports slipped in dollar terms in June as soft demand continued to weigh on trade.

Currencies
The yen wiped out its first gain in three days against the dollar amid the rally in global equities. Japan’s currency was little changed at 104.53 per dollar, after sliding more than 4 percent over the last two days. Abe has ordered his economy minister to compile stimulus measures this month, while the Sankei newspaper reported government officials are considering “helicopter money” as a policy option.
The pound rose 0.2 percent to $1.3275, headed for its longest winning streak in two months, before Theresa May takes over as prime minister later Wednesday. The result of the referendum pushed sterling to its worst day on record and sent the pound to the lowest level since 1985.
The Canadian dollar was little changed before a Bank of Canada decision with policy makers forecast to hold the overnight interest rate unchanged.
The yuan was little changed at 6.6944 per dollar in offshore trading amid speculation China’s central bank is limiting the supply of the currency in Hong Kong to deter bets on depreciation.

Commodities
Copper climbed 1.9 percent in London, building on a 3.9 percent advance over the last three trading days, on speculation central-bank stimulus measures will buoy demand for materials. Iron ore rose to the highest level since April on the Dalian Commodity Exchange as steel rebar traded near a 10-week high in Shanghai. Nickel fell 1.2 percent, retreating from an eight-month high.
Crude oil fell 0.9 percent to $46.38 a barrel, after jumping 4.6 percent on Tuesday, when U.S. industry data was said to show the nation’s stockpiles increased by 2.2 million barrels last week. Government figures on Wednesday are forecast to show supplies slid.
Cotton gained as much as 5 percent to a two-year high in China after the U.S. Department of Agriculture cut its projections for world output and stockpiles by more than analysts forecast.

Bonds
Treasuries rose, sending the yield on notes due in a decade three basis points lower to 1.47 percent.
The rate, which sank to an unprecedented 1.32 percent a week ago, surged 15 basis points over the past two sessions as demand at auctions of three- and 10-year weakened to levels last seen in 2009.
Germany’s securities also halted a two-day decline, even as the nation auctioned 10-year debt with a negative yield for the first time. Yields are negative on around 38 percent of the $25.3 trillion of securities that comprise the Bloomberg Global Developed Sovereign Bond Index.
Deutsche Bahn AG this week became the first non-financial company to sell negative-yielding bonds in euros. The German state-owned railroad sold 350 million euros of five-year debt to yield minus 0.006 percent on Tuesday, according to data compiled by Bloomberg.
Investors who rushed into bonds last week will face a hard time making money as rates begin to rebound, according to Jeffrey Gundlach, chief executive officer of DoubleLine Capital.
“There’s something of a mass psychosis going on related to the so-called starvation for yield,” Gundlach, whose firm manages $102 billion, said during a webcast Tuesday. “Call me old-fashioned, but I don’t like investments where if you’re right you don’t make any money.”