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Stocks Rally With Commodities on Optimism as Yen Falls

Markets.3

Global stocks rallied for a fifth day, commodities advanced and the yen weakened amid optimism central banks in some of the world’s leading economies will step up monetary stimulus.

Raw-materials producers led gains in both Asia and Europe, with the MSCI Asia Pacific Index having now recouped all of the loss that followed the U.K.’s vote to leave the European Union. U.S. equity index futures rose and the currencies of commodity-exporting nations strengthened as Brent crude rallied above $50 a barrel. Silver exceeded $20 an ounce for the first time in two years, while nickel climbed to an eight-month high. Australia’s bonds fell after a national election proved inconclusive.

The U.K.’s June 23 vote to leave the EU has fueled expectations that monetary authorities in Europe and Japan will add to record stimulus, while killing off speculation that the Federal Reserve will raise interest rates this year. Global equities last week rallied by the most in four months as policy makers worldwide sought to reassure investors they would take steps to limit the economic fallout of so-called Brexit and ensure financial markets keep functioning. The securities tumbled by the most since 2008 on the day after Britain’s referendum.

“While the potential for increased liquidity from central banks has helped calm stock markets, there’s still a lot of uncertainty out there,” said Nicholas Teo, a trading strategist at KGI Fraser Securities in Singapore. “With China still on a slowdown, U.S. recovery tentative and the messy U.K.-EU divorce, volatility will remain heightened.”

China’s official factory gauge retreated to the dividing line between improvement and deterioration last month, while a measure of services perked up, weekend data showed. A Bank of Japan report on Monday revealed the nation’s companies cut their forecasts for inflation for five years’ time, adding to pressure on the central bank to boost stimulus. Financial markets in the U.S. and Indonesia are shut for holidays.

Stocks

The Stoxx Europe 600 Index added 0.2 percent as of 8:14 a.m. London time. More than 80 percent of 43 economists surveyed by Bloomberg last week said they expected the European Central Bank to add more stimulus, up from 67 percent in a similar poll conducted a month earlier. Of those who expect action, 90 percent said it will come at one of the next two meetings, either July 21 or Sept. 8.

The U.K.’s FTSE 100 Index gained 0.3 percent. British stocks are poised to provide investors with a big “entry point” after dropping to an almost four-decade low relative to other developed markets, according to Michael Hartnett, chief investment strategist at Bank of America Corp.’s Merrill Lynch unit. S&P 500 futures rose 0.2 percent.

The MSCI Asia Pacific Index gained 0.8 percent, after rebounding 3.5 percent last week. Hong Kong’s Hang Seng Index climbed 1.3 percent, wiping out its post-Brexit loss, and the Shanghai Composite Index rallied 1.9 percent.

Jiangxi Copper Co., Sumitomo Metal Mining Co. and Fortescue Metals Group Ltd. jumped more than 5 percent. Midea Group Co. rose 1.5 percent in Shenzhen after boosting its stake in robot-making company Kuka AG, which gained 1.1 percent in Germany. China Vanke Co., the developer whose reorganization proposal is being stymied by a battle for control, plunged by the 10 percent daily limit as its shares resumed trading for the first time this year.

Commodities

Brent crude rallied 0.5 percent to $50.62 a barrel. A militant group operating in Nigeria’s southern oil-producing region said it attacked five crude-pumping facilities, dealing a blow to the government’s effort to enforce a cease-fire.

Silver soared as much as 7 percent, its biggest intra-day gain since 2014, before paring its advance to 3 percent. Holdings in silver-backed exchange traded funds expanded to a record last month, and assets in gold ETFs are now at the highest since August 2013. Bullion rose 0.6 percent on Monday.

“Brexit has created all sorts of fear and loathing across markets,” Commonwealth Bank of Australia analysts, including Tobin Gorey, wrote in a July 4 note, adding that investors are cutting back on risk. “Gold and silver, as we would expect, benefit the most from safe-haven demand flows.”

Nickel, which is used in the production of stainless steel, rose 1.2 percent to about $10,000 a ton in London. It surged 5.6 percent on Friday after the Philippines announced plans to audit all mining operations, threatening to curb supplies from the southeast Asian country. Less than a third of miners operating in the nation are compliant with international standards for responsible mining, according to the government.

Rubber futures climbed 3.7 percent in Tokyo, buoyed by shrinking stockpiles after rains disrupted production in Thailand. Cotton surged by a similar amount in China, its biggest advance since April.

Currencies

The British pound rose 0.2 percent versus the dollar, its first gain in three days, after Chancellor of the Exchequer George Osborne floated the possibility of a lower corporate tax rate and before Bank of England Governor Mark Carney outlines the available macroprudential tools on Tuesday. The currency tumbled 8.1 percent in June, the most since 2008, as the U.K.’s decision to leave the EU shocked investors and triggered political upheaval in the country.

Japan’s yen weakened 0.2 percent to 102.69 per dollar. It declined 0.3 percent last week as BOJ Governor Haruhiko Kuroda said more funds could be injected into the market should they be needed. The haven currency touched 99.02 in the wake of the vote for Brexit, its strongest level since 2014.

The Bloomberg Dollar Spot Index held near a one-week low after the U.K.’s referendum outcome pushed out expectations for the timing of the Fed’s next interest-rate increase. Futures indicate a 12 percent chance of a rate hike this year, down from 50 percent on the day of the vote.

The Australian and Canadian dollars as well as South Africa’s rand appreciated 0.3 percent, buoyed by the pickup in commodity prices.

Bonds

The yield on Australia’s 10-year government bonds increased by five basis points to 2.01 percent, after sinking to a record 1.95 percent in the last session. The nation’s inconclusive vote raises the prospect Prime Minister Malcolm Turnbull’s Liberal-National coalition — or the main opposition Labor Party — will be forced to work with a handful of disparate independent lawmakers in order to stay in power. Ballot counting doesn’t resume until Tuesday.

“It looks like another three years of de facto minority government, which is not a great outcome for the economy and investment markets,” said Shane Oliver, head of investment strategy at AMP Capital Investors Ltd., which manages more than $110 billion in Sydney.

The Reserve Bank of Australia is expected to leave interest rates unchanged at a policy review on Tuesday, according to all 27 economists surveyed by Bloomberg. Swaps indicate a better-than-even chance of an easing in August following the next inflation reading.

Japanese government bonds due in a decade yielded minus 0.255 percent, having earlier matched the record low of minus 0.26 percent. Barclays Plc and JPMorgan Chase & Co. are among financial companies that predict the BOJ will boost stimulus at a policy meeting this month.

Source: Bloomberg