Stocks lifted by earnings, commodities; bonds gain

Cape Town - A rally in commodities from oil to copper lent momentum to European stocks as positive corporate results continued to feed into markets.

The dollar edged higher and bonds bounced as investors waited for clues on the fate of the Federal Reserve balance sheet.

Energy shares joined a broad-based rally in benchmark equity indexes across Europe and Asia as oil rose above $48 a barrel for the first time since early June.

Copper reached a two-year high on expectations of increasing demand from China. Treasuries and European government bonds rose following Tuesday’s selloff, but the higher yields still offered support to the dollar, which gained against most G-10 peers.

More than 80% of S&P 500 companies have delivered earnings that have beaten forecasts so far this reporting period, helping to support optimism in the global economy and pushing volatility to record lows.

Investors are looking for guidance from the Fed on how it plans to unwind its bond portfolio, with policy makers seen keeping interest rates on hold as the US central bank meeting concludes on Wednesday.

“Top of our mind is whether there will be more clarity on efforts to unwind the US$4.5trn portfolio of Treasuries and mortgage-backed securities,” Isaah Mhlanga, an economist at Rand Merchant Bank in Johannesburg, said in a client note.

“We think the bank will give more clarity on its intention to do so but without the specifics of timing. When the Fed eventually introduces Taper 2.0, that will be the return of volatility.”

John Stopford, head of multi asset income at Investec Asset Management, previews the Fed interest rate decision. (Source: Bloomberg)

Investors see no chance of a rate increase in July, according to pricing in federal funds futures contracts. Policy makers might update their language on inflation, because weakness in price data has persisted since they met in June.

Here are some key events coming up:

• The Fed will unveil the timing of its balance sheet unwind in September and wait until December to raise interest rates again, according to a Bloomberg survey of 41 economists. 

• Donald Trump’s son and former Trump campaign chairperson Paul Manafort will go before Senate committees on Wednesday.

• Data on mortgage applications and new home sales may give clues about the state of the US economy.

• Results from Facebook, Deutsche Bank, Nomura, BNP Paribas SA and UBS are among those expected this week.

Here are the main moves in markets:

Stocks

• The Stoxx Europe 600 Index advanced 0.7% as of 11:47, the biggest gain in a week.

• The UK’s FTSE 100 Index increased 0.6%.

• Germany’s DAX Index increased 0.5%, the biggest climb in two weeks.

• Futures on the S&P 500 Index gained 0.1%.

• The underlying gauge added 0.3% to close at a record on Tuesday.

• The Dow Jones Industrial Average rose 100.26 points to finish just shy of its record from July 19.

Currencies

• The Bloomberg Dollar Spot Index increased 0.1% to the highest in a week.

• The euro declined 0.2% to $1.1626.

• The British pound decreased 0.1% to $1.3018 after data showed the UK economy expanded 0.3% in the second quarter, matching estimates.

• The yen was little changed at ¥111.84/$ after declining 0.7% on Tuesday.

Commodities

• Gold dipped 0.3% to $1 246.32 an ounce.

• West Texas Intermediate crude advanced 0.8% to $48.26 a barrel, the highest in seven weeks.

•  Crude inventories declined by 10.2 million barrels last week in an American Petroleum Institute report released on Tuesday, people familiar with the data said. 

• Copper gained 0.6% in its fifth consecutive advance. 

• The Bloomberg Commodity Index climbed 0.1%.

Bonds

• The yield on 10-year Treasuries dipped two basis points to 2.31%, after surging eight basis points in the previous session.

• Germany’s 10-year yield decreased one basis point to 0.56%.

• Britain’s 10-year yield declined three basis points to 1.231%.

Asia

• Japan’s Topix index rose 0.2% and Australia’s S&P/ASX 200 Index added 0.9%.

• South Korea’s Kospi index fell 0.2%, while the Hang Seng Index in Hong Kong gained 0.3%.

• The Shanghai Composite Index added 0.1%.

• The Aussie fell 0.4% to 79.09 US cents after Australia’s second-quarter headline inflation rose less than expected from a year earlier.

• 10-year Australian government notes saw yields climb four basis points to 2.73%.

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