Stocks, emerging markets rally on Yellen; Pound gains

BLOOMBERG

Stocks rallied with emerging markets as investors added to bets that U.S. interest rates will stay lower for longer, keeping growth on track.
The MSCI All Country World Index headed for its strongest close since April after Federal Reserve Chair Janet Yellen on Monday signalled that officials won’t derail the economy with a premature rate hike. Emerging-market stocks and currencies advanced for a fourth day. The South Korean won surged the most in six years, and the currencies of Australia and India rose after the nations’ central banks kept interest rates unchanged. The pound rose as a poll showed the campaign to keep Britain in the European Union ahead. The Bloomberg Commodity Index halted a four-day gain that had pushed it to a bull market.
The S&P 500 climbed toward a record on Monday after Yellen said she expects to raise interest rates only gradually and held off from specifying any timeframe, a shift from her May 27 stance that a move was probable “in the coming months.” The odds of a rate hike by July dropped to 22 percent in the futures market, after halving to 27 percent on Friday as a report showed U.S. jobs growth in May was the weakest in almost six years.
“Yellen has basically just given us a bit more time on easy monetary policy,” said Jasper Lawler, a London-based market analyst at CMC Markets Plc. “I don’t think anyone thinks from just one payrolls report that the U.S. economy is about to fall off a cliff, but that weak print does just mean the Fed is on delay.”

Stocks
MSCI’s global index advanced 0.4 percent as of 8:45 a.m. New York time, set to close at its strongest level since April 21. The Stoxx Europe 600 Index climbed the most in two weeks. Germany’s benchmark DAX Index was among the best-performing western-European markets after data showed the euro-area economy grew faster than previously estimated at the start of the year.
Futures on the S&P 500 advanced 0.1 percent, indicating U.S. equities will extend gains on Monday that were propelled by Yellen’s remarks.
The U.S. central bank will announce its next rate decision on June 15. Traders are now pricing in a 2 percent chance of an increase in June — down from 22 percent before Friday’s disappointing payroll data. December is now the first month with more than even odds for a hike.
Valeant Pharmaceuticals International Inc. tumbled 17 percent in early New York trading after it cut its 2016 profit forecast, citing “significant disruption” over the past nine months.
The MSCI Emerging Markets Index rose 1.5 percent, the most since April 13 on a closing basis. The Philippine Stock Exchange Index rallied 1.5 percent . South Korea’s Kospi climbed 1.3 percent.
Hong Kong’s Hang Seng China Enterprises Index rose 1.6 percent, its eighth day of increases, while the Shanghai Composite Index was little changed. China’s foreign-exchange reserves slipped to the lowest level since 2011 as the yuan weakened, the People’s Bank of China said after the market closed.

Commodities
The Bloomberg Commodity Index declined for the first time in a week, having ended Monday more than 20 percent higher than its January low. A four-year bear market that pushed raw materials to the lowest level in a quarter century has drawn to an end after supply constraints drove a recovery from soybeans to zinc.
Gold slipped 0.7 percent, trimming this month’s advance to 1.8 percent. Zinc fell 0.3 percent on the London Metal Exchange, retreating from its highest close since July 2015. Copper fell 2.4 percent as data showed the biggest two-day increase in stockpiles since 2004, while aluminum gained 0.3 percent. Aluminum prices are likely to decline as smelters in China, the biggest producer, restart capacity to take advantage of thicker margins, Goldman Sachs Group Inc. said in a report Monday.
West Texas Intermediate crude oil advanced 1 percent to $50.17 a barrel, having climbed 2.2 percent on Monday. U.S. government data due Wednesday is forecast to show crude stockpiles dropped for a third week, trimming a glut. Eni SpA said 65,000 barrels a day of supply was halted Friday after a militant attack in Nigeria.

Currencies
The Aussie strengthened 1 percent versus the greenback, having been little changed prior to the Reserve Bank of Australia’s policy meeting. The authority refrained from giving any guidance on whether it will consider adding to May’s interest-rate cut.
India’s rupee gained 0.3 percent, reaching a three-week high after central bank Governor Raghuram Rajan left borrowing costs unchanged as widely expected.
The pound was 0.8 percent higher, the strongest gain since March 17. Sterling has fluctuated in recent weeks, depending on which side of the EU referendum argument was gaining momentum.
Sterling’s climb comes after it dropped in early trading Monday, as three polls were released showing more Britons favor quitting the EU than staying. Two more surveys that came later the same day showed slim leads for the “Remain” camp.
The Bloomberg Dollar Spot Index slipped 0.2 percent, set for its weakest close since May 11 based on closing prices.
The yuan fell for a second day after the People’s Bank of China weakened its daily reference rate by the most in a week.
Bonds
Treasuries gained before a U.S. auction of $24 billion of three-year notes on Tuesday. The yield was two basis points lower at 1.72 percent, after rising four basis points on Monday.
Bonds advanced across Europe, led by the region’s higher-yielding sovereign markets. Spain’s 10-year yield fell three basis points to 1.48 percent, while that on similar-maturity Italian securities slipped three basis points to 1.44 percent.
The Netherlands and Austria sold debt securities while Germany auctioned inflation-linked bonds due in 2026.
A Toyota Motor Corp. unit sold three-year yen bonds on Tuesday with a 0.001 percent coupon, the lowest ever for a Japanese company. Unprecedented monetary stimulus by the Bank of Japan has led to negative yields on sovereign debt with tenors of less than a decade.
Average yields on investment-grade corporate bonds in euros were at 1 percent a day before the ECB is due to start purchases under an enlarged quantitative easing program. Borrowing costs for highly rated companies have tumbled since the plan was announced, and they are on the cusp of falling below 1 percent for only the second period, based on Bank of America Merrill Lynch index data. Average yields on junk-rated corporate bonds have dropped to 4.69 percent as investors switch into riskier assets in search of higher returns.