U.S. Shares Regain Records as Fed Outlook Hits Dollar

U.S. stocks rose to a record, while the dollar weakened as traders pushed back bets on higher interest rates amid uneven growth in the world’s largest economy. Oil advanced.

All three American equity benchmarks climbed amid corporate deal activity, and as a third day of gains in crude oil bolstered commodity producers. Emerging-market stocks advanced for an eighth straight day as Russian shares rallied to an all-time high, while the dollar declined against most of its major peers. The pound fell to its lowest closing level since 1985 amid speculation data will start to show the U.K.’s decision to leave the European Union has negatively affected the economy. Most industrial metals rebounded.

Traders have gravitated toward equities as lackluster data on the world’s biggest economies fuels speculation central banks will continue to support them with stimulus and loose monetary policy. Better-than-estimated corporate earnings have also bolstered U.S. stocks, driving valuations higher. The average price for S&P 500 Index members relative to projected earnings has climbed to its highest level since 2002, while measures of volatility in American equities remain close to all-time lows.

“Stocks have retained a hot pitch and there’s a lot of demand for equities,” said Andrew Brenner, head of international fixed income for National Alliance Capital Markets in New York. “The question is how you make money in a low interest rate environment, and equities might be expensive, but they’re the least dirty shirt.”

Stocks

The S&P 500 advanced 0.3 percent to 2,190.15 as of 4 p.m. in New York, after U.S. equities slipped from their highs Friday following disappointing retail sales and consumer confidence data. A report Monday showed manufacturing activity in the New York region unexpectedly contracted this month, while a gauge of homebuilder sentiment climbed.

Both the Dow Jones Industrial Average and the Nasdaq Composite Index rose to fresh record highs.

Copper miner Freeport-McMoRan Inc. paced gains in raw-material shares, while Post Properties Inc. jumped after Mid-America Apartment Communities Inc. agreed to buy the company for about $3.9 billion. Xylem Inc. also climbed after agreeing to acquire Sensus for about $1.7 billion to enhance technology offerings in water distribution and treatment.

The MSCI Emerging Markets Index rose to its highest level since July 2015, capping its longest run of gains in a month. The Micex Index climbed 0.5 percent in Moscow as the rebound in energy, Russia’s chief export, lured investors to the cheapest stocks among developing nations. A gauge of Chinese real-estate companies jumped after stake purchases by China Evergrande Group fueled optimism of more mergers.

European shares were little changed as investors assessed recent gains in light of the outlook for earnings and economic growth. Automakers posted the best performance of the Stoxx Europe 600 Index’s 19 industry groups, with Volkswagen AG’s advance buoying Germany’s DAX Index, which entered a bull market last week. BP Plc led oil stocks higher.

Futures on Asian equity gauges climbed, with yen-denominated contracts on the Nikkei 225 Stock Average up 0.4 percent to 16,870 in Chicago. Futures on Australia’s S&P/ASX 200 Index rose 0.2 percent, while those on Hong Kong’s Hang Seng Index gained 0.4 percent. FTSE China A50 Index futures climbed 0.1 percent following the Shanghai Composite Index’s best day since May on Monday.

Currencies

The dollar extended last week’s retreat as investors became less confident over a potential rate increase in 2016, with minutes of the Federal Reserve’s July meeting due on Wednesday. The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, dropped 0.2 percent, bringing its drop in the year to 4.7 percent as the U.S. shows few signs of diverging from central banks in Asia and Europe, which are bolstering stimulus.

“The market really has not moved to price in any more chance of Fed tightening,” said Daniel Katzive, head of foreign-exchange strategy for North America at BNP Paribas SA in New York. “That’s sapped the dollar of any momentum.”

Sterling sank as much as 0.4 percent before reports on British inflation, retail sales and unemployment benefit claims for July. The data will provide more detail on how the economy is faring after the June 23 referendum in favor of Brexit.

The yen was little changed at 101.26 per dollar after jumping 0.7 percent on Friday.

Bonds

Yields on 10-year Treasury notes increased four basis points, or 0.04 percentage point, to 1.56 percent, according to Bloomberg Bond Trader data.

BlackRock Inc. is reducing its exposure to long-dated Treasuries as increased hedging costs from Japan to Europe make the debt less alluring to some foreign investors. Yields on benchmark U.S. 10-year notes are negative for Japanese buyers and about zero for euro-based investors who pay to eliminate currency fluctuations from their returns.

“We’ve reduced some of our exposure to 10-year Treasuries, to the back end of the yield curve,” because of costs to hedge currency risk, said Rick Rieder, chief investment officer for global fixed income at BlackRock, in an interview on Bloomberg TV. “It’s a big deal that it’s become expensive to hedge. The buying will continue, but not nearly at the pace it has.”

Commodities

Oil extended its recovery amid speculation that crude producers will revive talks to steady prices. West Texas Intermediate for September delivery advanced 2.8 percent to settle at $45.74 on the New York Mercantile Exchange.

Crude has rallied more than 10 percent since closing below $40 a barrel on Aug. 2 and tumbling into a bear market earlier this month. Saudi Arabian Energy Minister Khalid Al-Falih said in a statement last week that talks with members of the Organization of Petroleum Exporting Countries and other producers may result in action to stabilize the market, according to the state-run Saudi Press Agency.

“It’s really a question of whether the fundamental picture is going to improve and help us with a rally,” said Gene McGillian, a senior analyst and broker at Tradition Energy in Stamford, Connecticut. “We’ll find out if we’re going to see a continued rebalance in the market, a tightened supply and demand picture, in the coming weeks.”

Nickel rebounded from its lowest closing price in a month as UBS Group AG said the full impact of mine shutdowns in the Philippines is still to come. Gold, silver and copper also advanced.

Source: Bloomberg