U.S. Stocks, Dollar Rise as Oil Falls; Europe Shares Gain

December 2, 2014

Frankfurt (Dec 2)  U.S. stocks rose with the dollar on speculation the economy is strong enough to withstand tighter monetary policy. European equities gained on the prospects for increased stimulus, while oil retreated.

The Standard & Poor’s 500 Index (SPX) climbed 0.4 percent at 10:24 a.m. in New York. The Stoxx Europe 600 Index advanced 0.5 percent for its first gain in three days. The Shanghai Composite Index jumped 3.1 percent. The Bloomberg Dollar Spot Index rose 0.6 percent. The yield on the 10-year Treasury note advanced four basis points to 2.28 percent. West Texas Intermediate crude slid 2.6 percent to $67.22 a barrel after a 4.3 percent surge yesterday. The ruble tumbled 4.2 percent.

U.S. data today showed construction spending rose more than forecast in October, while economists estimate data later this week will show steady gains in hiring. Two Federal Reserve officials said lower crude prices will boost spending and aid growth. The European Central Bank will review policy later this week as officials weigh the effect of cheaper oil on consumer prices and spending. The People’s Bank of China refrained from draining funds from the financial system, fueling speculation it may be preparing stimulus measures.

“Stocks are still showing they are the best game in town as energy prices sink,” boosting deflation expectations, Daniel Weston, chief investment officer at Aimed Capital GmbH in Munich, said by e-mail. That could prompt “further ECB action to come to support growth and an inflation target,” he said.

Health Shares

The S&P 500 fell 0.7 percent yesterday, the most since Oct. 22, as weaker data on Black Friday sales and China manufacturing overshadowed a rebound in oil prices and expansion in American factories. The gauge has climbed for six Decembers in a row, posting an average return of 2.2 percent.

Among stocks moving today, health-care shares rallied 0.9 percent as Biogen Idec Inc. surged 7.3 percent on positive data from an Alzheimer’s drug trial. Energy shares swung between gains and losses. Newmont Mining Corp. slid 2.8 percent as the price of gold retreated.

The Stoxx 600 has rallied 12 percent from an October low as ECB President Mario Draghi said the lender may broaden its asset-buying program to include government bonds, while central banks in Japan and China have boosted stimulus measures. The ECB next meets on Dec. 4.

Fed Vice Chairman Stanley Fischer and New York Fed President William C. Dudley, speaking at separate events yesterday in New York, both stressed the positive economic impact from the steepest decline in oil prices for five years.

Oil Effect

“I’m not very worried,” Fischer told an audience at the Council on Foreign Relations. “The lower inflation that we’ll get from the lower price of oil is going to be temporary.”

Oil has collapsed into a bear market amid the highest U.S. output in more than three decades and signs of slowing global demand growth. OPEC, responsible for about 40 percent of the world’s oil supply, resisted calls from members including Venezuela and Iran to reduce its quota of 30 million barrels a day at a Nov. 27 meeting in Vienna.

Brent crude slid 1.4 percent to $71.53 a barrel after yesterday’s 3.4 percent rally, the biggest since October 2012, as the Iraqi government and Kurdish authorities reached a deal on oil exports. West Texas Intermediate crude sank in New York.

The dollar appreciated 0.5 percent to $1.2409 per euro and climbed 0.7 percent to 119.22 yen, having reached 119.28, the strongest since August 2007. The euro rose 0.2 percent to 147.95 yen.

Big Fan

“I’m a big fan of the U.S. dollar,” said Neil Jones, head of hedge fund sales at Mizuho Bank Ltd. in London. “We’ve seen some very encouraging economic data and the upside is likely to continue. The policy divergence between the Federal Reserve and the rest of the developed economies is supportive for the dollar.”

More than two shares advanced for every one that declined in the Stoxx 600 as a gauge of energy companies rallied from a three-year low.

Friends Life Group Ltd. climbed 3 percent after Aviva Plc agreed to buy it for about 5.6 billion pounds ($8.8 billion) in stock. Aviva gained 0.7 percent.

Deutsche Lufthansa AG fell 1.4 percent after the airline said a pilot strike that began yesterday will affect both long-haul and shorter flights today.

Neopost SA (NEO) tumbled 15 percent after the manufacturer of mailing and shipping equipment lowered its annual revenue-growth forecast. Royal Mail Plc lost 2.8 percent after a U.K. regulator said it won’t impose conditions on the postal service’s competitors.

China, Russia

The MSCI Emerging Markets Index rose 0.1 percent, paring earlier gains as Brazilian shares declined for a second day.

The Hang Seng China Enterprises Index of mainland shares traded in Hong Kong jumped 2.8 percent. The central bank halted sales of repos used to withdraw funds on Nov. 27 for the first time in four months, after conducting the operations every Tuesday and Thursday.

The ruble slid 53.4770 per dollar, approaching an all-time low of 53.95 yesterday. Russia’s currency has tumbled 16 percent in six days as oil dropped to a five-year low.

Russia’s economy may enter its first recession since 2009 in the first quarter, Deputy Economy Minister Alexei Vedev said. Gross domestic product may shrink 0.8 percent next year, compared with an earlier estimate of 1.2 percent growth, Vedev told reporters in Moscow today.

The Micex index of stocks rose for a third day as a weaker currency boosts the profit outlook for exporters whose costs are mainly based in rubles.

The Bloomberg Commodity Index sank 1.4 percent as gold dropped to $1,195 an ounce and silver fell 2.6 percent.

Copper declined for the sixth time in seven days amid signs of slowing growth in China, the largest metals consumer. The metal for delivery in three months tumbled 1.4 percent to $6,360 a metric ton on the London Metal Exchange. Aluminum, zinc, tin and lead fell on the LME.

Source: Bloomberg

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