Europe Stocks, Portugal Bonds Gain as Dollar Strengthens

July 16, 2014

Frankfurt (July 16)  European stocks rose and Portuguese notes led advances in sovereign bonds on mounting confidence a debt crisis is being contained. The dollar reached a three-week high and commodities gained for the first time in nine days.

The Stoxx Europe 600 Index increased 1.1 percent and the Bloomberg Dollar Spot Index rose 0.1 percent at 11:25 a.m. in London. Standard & Poor’s 500 Index futures gained 0.3 percent. Portuguese 10-year bond yields slid seven basis points after the central bank said shareholders in Banco Espirito Santo SA are willing to inject more capital. The Bloomberg Commodity Index added 0.4 percent after China’s economic growth accelerated for the first time in three quarters.

Federal Reserve Chair Janet Yellen told U.S. lawmakers that benchmark rates could increase sooner than expected if inflation and the job market pick up faster than anticipated. China’s economy expanded 7.5 percent from a year earlier in the second quarter. The U.K. government said unemployment slid to the lowest level in 5 1/2 years. Industrial output figures are scheduled in the U.S.

“There appears to be less speculation about further turmoil in Portugal and therefore investors are forced to go back to the market,” said Herbert Perus, who helps oversee $36 billion as head of equities at Raiffeisen Capital Management in Vienna. “The stocks that were sold heavily yesterday are bought today.”

The Stoxx 600 climbed after sliding 0.4 percent yesterday. All 19 industry groups in the gauge rallied, with oil and gas companies gaining the most. Portugal’s PSI 20 Index rose 3 percent, the most among 18 western-European markets.

Holding Companies

Banco Espirito Santo jumped 18 percent, after closing at its lowest price since at least 1993. Bank of Portugal Governor Carlos Costa said the bank has a “capital cushion” to deal with the risks it faces after a holding company failed to repay short-term debt.

The cost of insuring against losses on the Lisbon-based bank’s debt dropped the most in four years, with credit-default swaps on senior bonds dropping as much as 78 basis points to 399 basis points.

Rioforte Investments SA, part of the Espirito Santo group, defaulted on 847 million euros ($1.2 billion) of commercial paper sold to Portugal Telecom SPGS SA. The phone operator rose 6.5 percent after agreeing to rescue its merger with Oi SA of Brazil, which had been threatened by the crisis in Lisbon.

Mining Company

Rio Tinto Group added 2.3 percent as the mining company said second-quarter iron-ore production increased 11 percent. TNT Express NV lost 2.3 percent after saying it may get fined for alleged anti-competitive behavior in France.

The volume of shares listed on the Stoxx 600 changing hands was 9.7 percent greater than the 30-day average, data compiled by Bloomberg show.

Apple Inc. gained 2.1 percent in early New York trading and International Business Machines Corp. advanced 1.9 percent after the companies said they will work together on business software for iPhone and iPad users.

Intel Corp. jumped 5.5 percent after the world’s biggest maker of semiconductors forecast third-quarter sales that topped some analysts’ predictions. Yahoo! Inc. fell 2 percent after the Web portal reported that sales fell last quarter, missing analysts’ projections.

Three Months

Bank of America Corp., BlackRock Inc. and EBay Inc. are among companies reporting earnings today. Profit at S&P 500 companies probably rose 4.5 percent in the three months through June, while sales gained 3.1 percent, analyst estimates compiled by Bloomberg show.

A report at 9:15 a.m. New York time will show that industrial production rose at a slower rate in June than in May, according to the median estimate of economists surveyed by Bloomberg. Output increased 0.3 percent, compared with 0.6 percent gain in the previous month.

Yields on Portugal’s two-year notes declined eight basis points to 0.94 percent. Spain’s 10-year yield dropped six basis points to 2.65 percent and the rate on similar-maturity Italian debt fell three basis points to 2.82 percent.

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major peers, reached 1,010.03 today, the highest since June 25. The won slid to 1,031.98 per dollar and touched 1,035.99, the weakest level since April 28. New Finance Minister Choi Kyung Hwan’s call for aggressive action to revive economic growth is fueling speculation that South Korea will cut interest rates.

Crude Oil

West Texas Intermediate crude advanced to $100.68 a barrel today. WTI settled at $99.96 last session, its first close below $100 since May, as concerns over supply disruptions in Libya and Iraq continued to ease.

Gold rose 0.3 percent to $1,297.69 an ounce in London trading, after falling below $1,300 yesterday for the first time since June 19. Zinc climbed 0.6 percent on the London Metal Exchange, trading near a 35-month high. Corn futures rose 1.2 percent on the Chicago Board of Trade, rebounding from the lowest price since July 2010.

The MSCI Emerging Markets Index was little changed, slipping less than 0.1 percent from the highest close since February 2013.

Russian stocks fell for a third day, with the Micex Index losing 0.3 percent. The ruble erased earlier gains against the dollar. European Union leaders meeting in Brussels may agree later today to expand sanctions, including imposing penalties on Russian companies, halt bilateral cooperation programs and further clamp down on commerce with Crimea, according to a draft document obtained by Bloomberg News.

Source:  Bloomberg

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