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Global stock rally slows as Nestlé disappoints

Singapore - European shares hovered around a two-week high as investors assessed earnings from companies including Nestle SA and Air France-KLM Group. Government bonds rose and oil advanced.

Food-related companies and miners weighed on Europe’s equity benchmark, and US stock-index futures rose. Treasuries advanced, and the yen also climbed. Emerging markets rose to a six-week high, while the Mexican peso gained a second day after lawmakers took unprecedented steps to protect the currency. Crude extended gains with Iran backing an output freeze by key energy-producing nations.

“We’ve seen a nice bounce lately so we need some breathing,” said Christian Gattiker, head of research at Julius Baer Group in Zurich. “We won’t see 2 percentage points increase every day. We look for some recovery for the next few weeks but the jury is still out.”

While global stocks are rising for a fifth day, fueled by oil’s rally coupled with the Federal Reserve’s acknowledgment of market gyrations, the pace of gains slowed on Thursday.

St. Louis Fed President James Bullard said on Wednesday recent turmoil that’s contributed to a further decline in investors’ inflation expectations has given the central bank scope to delay raising interest rates. China’s consumer price inflation quickened while factory-gate deflation moderated, signaling that demand is beginning to stabilize.

Stocks

The Stoxx Europe 600 Index rose 0.4% at 12:46 as Air France-KLM jumped the most since 2012 after reporting better-than-expected profit.

Miners posted the worst performance among industry groups, after an 8.1% rally Wednesday helped erase their losses for the year and took gains since a January low to 28%. Anglo American and Rio Tinto dropped 3.8% or more.

Food stocks also weighed on Europe’s benchmark gauge, as Nestle, the biggest component of the index, lost 3.2% after posting its smallest annual sales gain in six years.

Bank stocks, this year’s worst performers, advanced, led by Greece’s Alpha Bank AE and Italy’s Banca Popolare dell’Emilia Romagna SC.

Europe’s stocks have turned cheaper this year, sliding amid a deepening oil rout, concern over global-growth prospects and dissipating faith in central-bank support. Stoxx 600 members trade at about 14 times estimated earnings, down from a multiple of 17 in April.

Contracts on the Standard & Poor’s 500 Index expiring in March added 0.2%. The equity gauge Wednesday rose 1.7% to a two-week high, capping its first three-day advance this year. About 20 S&P 500 members post earnings Thursday, with Walmart Stores in focus for indications of US consumer health.

Investors will also scrutinize economic data for signs of any damping in growth. Separate reports will show business sentiment contracted for a sixth consecutive month in February, and an increase in initial jobless claims for last week, according to economists’ forecasts.

Emerging markets

The MSCI Emerging Markets Index advanced for a fourth day in the longest winning streak since the start of the month, rising 1.5%. Benchmarks from Russia and South Korea to Saudi Arabia rose at least 1%.

The Hang Seng China Enterprises Index jumped 3% while the Shanghai Composite Index slid 0.2%. China’s consumer-price inflation picked up in January, official data showed on Thursday, raising the prospect that a sustained acceleration would offer policy makers some relief as they battle to underpin growth.

Commodities

West Texas Intermediate crude climbed 2.5% to $31.41 a barrel after rallying 5.6% last session. US inventories declined by 3.26 million barrels last week, the industry-funded American Petroleum Institute was said to report Wednesday.

Oil’s 49% slump from a peak reached in June has shaken some crude-dependent economies, with S&P cutting the credit ratings of Saudi Arabia, Oman, Bahrain and Kazakhstan on Wednesday. Key oil producer Venezuela announced a currency devaluation, with the official exchange rate reduced by 37%, President Nicolas Maduro said on state TV.

The Latin American country also raised gasoline prices for the first time since 1996 as it struggles to avoid defaulting on foreign debt.

Copper in London slid 0.6%, while gold slipped 0.3% to $1 204.80 an ounce in the spot market after jumping 0.7% last session.

Currencies

The yen added 0.2% to 113.89 per dollar, extending its 2016 gain to 5.6%.

The Australian dollar declined at least 0.3% against all of its 16 major peers after a disappointing jobs report fueled investor doubts about whether the central bank is done cutting interest rates.

A gauge of the UK pound’s volatility against the euro jumped to the highest level since the currency bloc’s debt crisis as Prime Minister David Cameron seeks to seal a deal on the terms of Britain’s membership of the European Union.

Six-month implied volatility for the pound versus the euro, a measure of anticipated price swings based on options, climbed to 11.90%, the highest since October 2011, based on closing prices.

 A Bloomberg gauge of 20 developing-nation currencies rose for a second day, adding 0.2%. The ringgit led the advance, strengthening 1.1% after Malaysia’s economic growth slowed less than estimated.

Mexico’s peso climbed 0.8% after rallying the most since 2011 on Wednesday, when officials unexpectedly increased the overnight rate and said they will reconfigure an intervention program to contain volatility and reduce government spending.

China’s yuan traded onshore appreciated 0.19%. The People’s Bank of China said it will move to daily open-market operations, vowing to improve efficiency by increasing frequency. Separately, the PBOC was said to offer to reduce the medium-term borrowing cost it charges lenders in the second such move this year.

The PBOC has told banks it can provide cash through its Medium-term Lending Facility at 2.85% for six-month loans, down from 3%, and the one-year borrowing rate would be eased to 3 percent from 3.25%, said a person, who asked not to be identified because the plans aren’t public.

Bonds

European bonds climbed, with higher-yielding securities leading gains. The yield on Spain’s 10-year bond fell four basis points to 1.69%, and Italy’s dropped five basis points to 1.55%. Portugal’s 10-year bond yields decreased 17 basis points to 3.28%, while that on German bunds fell two basis points to 0.25%.

The yield on US 10-year Treasuries fell one basis point to 1.81%.

Japan sold five-year bonds at auction with a negative yield for the first time.

Bonds of state-controlled Saudi Electricity fell after the country’s downgrade. The yield on Saudi Electricity’s $1.5bn of bonds due in April 2024 climbed four basis points to 4.25%. Saudi Arabia was cut two levels to A- from A+ as the decline in oil prices will have “a marked and lasting impact” on the economy of the biggest OPEC producer, S&P said.

Bahrain’s January 2026 dollar bond fell for a third day to a record low, sending the yield up 23 basis points to 7.68%. S&P downgraded the oil-producer two steps to junk at BB on Wednesday, a day after the government sold $750m more of existing 2021 and 2026 bonds.

The cost of insuring corporate debt extended recent declines. The Markit iTraxx Europe Index of credit-default swaps on investment-grade companies fell for a fifth day, dropping three basis points to 107 basis points. The Markit iTraxx Europe Crossover Index, which tracks swaps on sub-investment grade company debt, declined seven basis points to 429 basis points.

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