Stocks rallied, with the Standard & Poor’s 500 Index rebounding from a 10-month low, after shares traded at their cheapest level relative to earnings since 2009. Oil climbed, European bond yields increased and the yen fell.
The S&P 500 advanced 1.1 percent to 1,034.12 at 9:40 a.m. in New York. The MSCI World Index jumped 1.7 percent, the most in three weeks. Spain’s IBEX 35 Index jumped 3.5 percent as the nation prepares to sell bonds. The Shanghai Composite Index gained 1.9 percent before Agricultural Bank of China Ltd.’s initial public offering. Oil surged 1.5 percent, the benchmark German bund yield rose six basis points to 2.56 percent, and the yen declined against all 16 of its most-traded counterparts.
Analysts are raising earnings estimates for U.S. companies at the fastest rate since at least 2004, while the MSCI World of equities in 24 developed nations traded at 15 times reported earnings yesterday, the lowest level since March 2009. Today’s gains come even as former International Monetary Fund chief economist Kenneth Rogoff warned China’s property market is beginning a “collapse” that will hit the nation’s banking system, and Europe is in “denial” about its lenders.
“The markets are oversold short-term and we’ve had a fair amount of weakness the last couple of weeks,” said Mark Bronzo, an Irvington, New York-based fund manager at Security Global Investors, which oversees $23 billion. “Now we’re about to get earnings. Most people feel earnings will be okay and maybe guidance will be a little conservative. You’ll see less shorting before earnings, that’ll give the market a lift.”
The S&P 500 erased about a quarter of last week’s 5 percent tumble today as commodity producers, technology and financial companies led gains among all 10 industry groups.
A report from the Institute for Supply Management at 10 a.m. New York time may show service industries expanded in June at a slower pace, indicating the economy started to cool entering the second half. The ISM’s index of non-manufacturing businesses, which covers about 90 percent of the economy, fell to 55 from 55.4 in May, according to the median forecast of 59 economists surveyed by Bloomberg News. Readings above 50 signal expansion.
Profit for S&P 500 companies will jump 34 percent in 2010, compared with a projected gain of 27 percent on March 29, according to more than 8,000 estimates compiled by Bloomberg. The revisions, the most during any quarter in at least six years, come as lower-than-forecast home sales, manufacturing and private-sector job growth sent the benchmark gauge for American equities down 16 percent since April 23.
More than 70 stocks rose for every one that fell in the Stoxx 600, with mining companies Rio Tinto Group and BHP Billiton Ltd. rallying more than 4.6 percent. BP Plc climbed 2.8 percent in London as drilling for the relief well that will kill off the Gulf of Mexico oil spill advanced ahead of schedule and the company said it has no plans to sell new shares to raise cash. Banco Santander SA, Spain’s largest lender, jumped 5.7 percent, leading the IBEX to its biggest gain in three weeks.
The MSCI Asia Pacific Index advanced 1.5 percent, its biggest gain in two weeks. Commonwealth Bank of Australia, the country’s largest bank by market value, jumped 2.3 percent in Sydney after the central bank kept its benchmark interest rate unchanged.
China’s Shanghai Composite gauge climbed the most in two weeks as stocks rebounded from the lowest level relative to earnings in 18 months. The rally may boost Agricultural Bank, which is likely to price shares today in what may be the world’s biggest initial public offering, according to two people with knowledge of the matter. The MSCI Emerging Markets Index advanced 1.7 percent, while developing-nation currencies strengthened and bonds rose.
European bonds fell, with the German bund’s decline driving the yield up from within five basis points of the lowest level since at least 1989. The yield on Spain’s 10-year bond rose 5 basis points to 4.66 percent. The nation’s planned sale of 10- year debt through banks may be priced to yield about 195 basis points more than the benchmark mid-swap rate, according to a banker involved in the deal.
The cost of insuring Spain’s debt fell today on speculation a successful bond sale will help the government plug the euro region’s third-largest budget deficit. Credit-default swaps on the nation dropped 9 basis points to 256, compared with a record-high closing price of 274.5 on May 6, according to CMA DataVision.
Default swaps on the Markit iTraxx Crossover Index of 50 mostly junk-rated European companies dropped 7 basis points to 561.5, the lowest since June 28, according to Markit Group Ltd.
The yen depreciated 0.5 percent to 110.57 per euro and slipped 0.1 percent to 87.81 against the dollar. Australia’s dollar climbed against all 16 of its most traded peers, rising 1.7 percent against the U.S. dollar, after the Reserve Bank of Australia said that consumer spending and business investment are expanding even as policy makers held their key rate steady.
Copper for delivery in three months climbed 2.8 percent to $6,647.25 a metric ton on the London Metal Exchange as inventories slipped to a seven-month low. Wheat futures in Chicago jumped to $5.1425 a bushel, the highest price since May 10, on speculation dry weather in Russia and other producing countries will reduce supplies.
Oil rose for the first time in six days, advancing 1.5 percent to $73.22 a barrel.