Stocks Rise, Especially Energy and Emerging Markets, Ahead of Fed Decision
(Bloomberg) -- Stocks rose in Europe, buoyed by rallies in the U.S. and China, and crude oil extended gains while bonds fell amid the countdown to Thursday’s Federal Reserve policy decision.
Emerging-market stocks climbed toward the highest level this month and currencies from South Korea to Russia rose as a late-day rally in Shanghai bolstered sentiment. German bonds fell for a third day after the government missed its sales target at an auction. The pound strengthened and gilts dropped after U.K. wages grew at their fastest pace in more than six years, while the yen was little changed after Standard & Poor’s downgraded Japan.
Traders give a 32% chance of an increase in U.S. interest rates, up from as low as 26% on Monday but still well below the 50% odds before China roiled markets by devaluing the yuan last month. Stocks rallied in the U.S. on Tuesday and Treasuries fell after data indicated resilience among American consumers, signaling confidence in the world’s largest economy and supporting the case for a liftoff in rates.
“Part of me thinks markets would like the first increase over and done with,” said Ben Kumar, a fund manager who helps oversee about $14 billion at Seven Investment Management in London. “Even if nothing happens this time, we’re still going to be speculating about an October and December meeting. Once you’ve started on a path, it’s easier to move along.”
The Stoxx Europe 600 Index jumped 1.4% at 8:35 a.m. in New York. Japan’s Topix gained 0.7%. S&P 500 Index futures were little changed following a 1.3% rebound in the U.S. stock measure.
Economists are split on what action Fed policy makers will take Thursday. More than half of 111 analysts surveyed by Bloomberg predict no change, while 50 say the rate will be increased by 0.25%age point and four see a 1/8%age-point increase.
Goldman Sachs Group Inc. said financial markets are vulnerable because nobody can agree on what the Fed will do.
“Nobody’s sure about the Fed,” said said Kim Youngsung, the head of overseas investment in Seoul at South Korea’s Government Employees Pension Service, which manages $12.7 billion. “It’s an awkward situation. If they’re concerned about the Chinese economy or the global economy, including emerging markets, probably the Fed will delay. Just looking at the U.S. data, it’s OK to increase the rate.”
Beverage companies and luxury-goods makers lead gains in Europe. SABMiller soared 21% after saying Anheuser- Busch InBev NV plans to make an offer in a deal that would bring together the world’s two biggest beermakers. The maker of Budweiser climbed 8.1%.
Richemont, the world’s biggest jewelry maker, climbed 7% after reporting sales growth accelerated as weaker currencies attracted big-spending tourists to Japan and Europe. Hermes International SCA and LVMH Moet Hennessy Louis Vuitton rallied more than 3%.
The MSCI Emerging Markets Index added 1.5%, with benchmark gauges in South Africa and South Korea climbing at least 2%.
The Shanghai Composite Index jumped 4.9% amid speculation the scrapping of quotas on overseas borrowing by approved companies will help stem capital flight and lower borrowing costs. Hong Kong’s Hang Seng China Enterprises Index rose 2.1%.
“In emerging markets, China is at least as important a factor as the Fed,” Maarten-Jan Bakkum, a senior emerging- markets strategist at NN Investment Partners in The Hague, said by e-mail. “So if the Chinese market rises, investors are willing to believe that this can offset some of the Fed risk.”
The ruble climbed 1.6% and the Malaysian ringgit gained 1.5%, with a gauge of 20 developing-nation currencies advancing for a seventh day. South Korea’s won strengthened 0.9% to 1,176.03 per dollar, as a credit-rating upgrade by S&P added to investor confidence in the nation’s economy.
“It could be a risk-off for emerging-market assets” if the Fed holds off from raising rates but sends a hawkish message, Tim Condon, head of Asia research in Singapore at ING Groep NV. “Our baseline scenario is they don’t hike, that they want to hike in October and it would take something pretty bad to prevent them from hiking in October.
The Bloomberg Dollar Spot Index slipped 0.2% after the measure that tracks the greenback against 10 of its major peers climbed 0.3% gain on Tuesday.
The pound rose 0.7% to $1.5446. Total pay in the U.K. including bonuses rose an annual 2.9% in the three months to July, up from a revised 2.6% the previous month, the Office for National Statistics said Wednesday.
The yield on 10-year German bunds rose four basis points to 0.79%. Germany received bids for 1.612 billion euros ($1.8 billion) of bonds due in 2046, compared with the 2 billion-euro goal.
Treasury note yields were little changed at 2.29%, after climbing 10 basis points on Tuesday. Yields on two-year notes, regarded as being more policy sensitive, were little changed at 0.81 after surging eight basis points last session to the highest since April 2011.
Gains in U.S. retail sales on Tuesday prompted investors to retreat from the securities that would be most affected if the Fed raises interest rates.
A Labor Department report showed the consumer-price index dropped 0.1%, the first decline since January, after rising 0.1% in July. The so-called core measure, which strips out often-volatile fuel and food costs, rose 0.1% for a second month.
Oil rose for a second day as U.S. industry data showed crude stockpiles declined by 3.1 million barrels last week in the world’s biggest consumer. West Texas Intermediate advanced 2% to $45.51 a barrel while Brent gained 2.1% to $48.74.
Industrial metals gained following a late rally in Chinese equities. Copper rose 0.3% to $5,370 a metric ton while nickel advanced 0.8%. Gold climbed 0.5% to $1,110.87 an ounce. Improving fundamentals for the metal will propel prices to about $1,200 an ounce by year-end, according to Capital Economics Ltd.
Wheat fell 0.6% to $4.92 a bushel, a second day of decline amid record stockpiles of the grain. Rains in the central and western plains of the U.S. should improve winter- wheat germination, MDA Weather Services said Tuesday.
With assistance from Emma O'Brien in Wellington, Wes Goodman in Singapore and Cecile Vannucci, James Herron, David Goodman and Sofia Horta e Costa in London.