Stocks, emerging markets gain as Fed seen pulling off hike

BLOOMBERG

Don’t fear the Fed is the new mantra for global markets.
Global equities rose to a two-week high amid increasing investor optimism that the world economy can withstand higher interest rates from the Federal Reserve. Oil advanced and gold fell amid a retreat in the dollar.
U.S. shares looked for consecutive climbs after alternating between gains and losses for seven sessions, European equities jumped and emerging-market stocks rose the most in six weeks. South Korea’s won led currencies higher even as China set the yuan’s reference rate at the weakest level since 2011. Crude rallied above $49 a barrel as gold slid for a sixth day. Greek bonds increased, pushing the 10-year yield below 7 percent for the first time since November.
Improving confidence in financial markets is tempering anxiety over the Federal Reserve’s plans to raise U.S. interest rates, potentially as soon as next month. Recent polls show growing support for the U.K. to remain in the European Union, the rally in commodities is damping the risk of deflation, and a measure of economic surprises in the world’s largest economies hit its highest level this year. Still, faith in global growth prospects has been easily shaken, with global equities failing to make any gains in 2016.
“U.S. data is supporting the view that if we don’t see stellar growth, at least we don’t see a recession, and that’s a good thing,” said Michael Woischneck, who oversees about €300 million ($335 million) at Lampe Asset Management in Dusseldorf, Germany. “If the Fed has the chance to hike again then it should take this opportunity as the market is very prepared. We also have a deal for Greece that has helped perceptions change in the European market.”

Stocks
The S&P 500 Index added 0.7 percent to 2,090.32 at 10:01 a.m. in New York, the highest level in almost a month after a 1.4 percent rally on Tuesday. Investors will look to data on services output and house prices for signs of the health of the world’s biggest economy amid increasing bets that the Fed is confident enough to raise rates.
“Yesterday was certainly a big day, and with the breadth in the market and some of the key groups rallying with bank stocks and semiconductor stocks, these are things telling us that we might be able to hold the rally this time,” Matt Maley, an equity strategist at New York-based Miller Tabak & Co LLC, said by phone.
Traders are now pricing in a one-in-three chance of higher borrowing costs in June. That’s up from 4 percent last Monday. July is the first month with more than even odds for a rate hike. Fed Chair Janet Yellen is scheduled to speak on Friday after European markets close.
The Stoxx Europe 600 Index added 1.1 percent , with almost all industry groups climbing. Carmakers and banks posted the biggest gains. The equity measure closed above its 50-day moving average on Tuesday for the first time after slipping below it earlier this month. That sends a short-term bullish signal in technical analysis, according to Saxo Bank A/S trader Pierre Martin. The MSCI Emerging Markets Index rose 1.7 percent, with technology and energy shares leading the advance. The Hang Seng China Enterprises Index of mainland stocks listed in Hong Kong surged 2.8 percent, the most in more than a month. Benchmark gauges in South Korea, Taiwan, the Philippines, Russia and Dubai increased at least 1 percent.

Currencies
The Bloomberg Dollar Spot Index fell 0.2 percent, paring its monthly advance to 3.3 percent. The yen was little changed at about 110 versus the greenback after Goldman Sachs Group Inc. predicted the Japanese currency would slide 12 percent by this time next year.
The Canadian dollar traded near the weakest level in seven weeks as the nation’s central bank maintained its key benchmark rate at 0.5 percent.
The MSCI Emerging Markets Currency Index climbed 0.3 percent. The won rose 0.9 percent, boosted by optimism that strength in the U.S. economy will shore up demand for South Korean exports. Malaysia’s ringgit strengthened 0.5 percent and Russia’s ruble gained for a second day to a one-week high.

Commodities
Oil extended gains in New York from the highest closing price in seven months after U.S. industry data showed crude stockpiles declined, easing a glut. Data from the Energy Information Administration on Wednesday is forecast to show supplies fell. West Texas Intermediate rose 1.2 percent to $49.22 a barrel and Brent added 1.4 percent to $49.29. WTI closed at a premium to Brent Tuesday for the first time in almost two weeks.
Gold dropped to the lowest level in seven weeks. Futures fell 0.6 percent to $1,225.30 an ounce. Most industrial metals declined, with nickel dropping 0.1 percent and aluminum losing 0.3 percent. Copper rose 1.3 percent to $4,659 a metric ton.

Bonds
The yield on 10-year U.S. Treasuries advanced one basis point to 1.87 percent. The U.S. is selling $34 billion of five-year securities on Wednesday after investors snapped up a $26 billion auction of two-year notes on Tuesday, leaving primary dealers with the lowest award at a sale of the debt in data going back to 2003.
Treasuries are the worst performers among developed bond markets in the past two years as the Federal Reserve raises interest rates, while other major central banks ease monetary policy.
Greece’s bonds advanced, pushing the 10-year yield below 7 percent for the first time since November.