European stocks and metals rose for the first time in six days as car sales in China surged the most since 2006 and Alcoa Inc. kicked off the second-quarter earnings season with results that beat analysts’ estimates.
The Dow Jones Stoxx 600 Index of European shares added 1 percent at 1:11 p.m. in London, snapping its longest stretch of declines since January. Copper advanced 2.3 percent on the London Metal Exchange after dropping 7.1 percent in the previous five sessions. The yen fell from a six-week high against the euro on speculation the central bank may intervene to weaken the currency. U.K. government bonds tumbled as the Bank of England said it will keep its asset-purchase plan unchanged.
Chinese auto sales climbed 48 percent in June, signaling that the government’s 4 trillion yuan ($585 billion) stimulus package is reviving the world’s third-largest economy. The country is “a positive force” that will help revive global growth, billionaire George Soros said yesterday. Alcoa Chief Executive Officer Klaus Kleinfeld forecast that demand in China will grow after the company posted a smaller-than-estimated quarterly loss.
“Corporate earnings can surprise on the upside and that will take the shine off the yen and support stock markets,” said Neil Jones, head of European hedge-fund sales at Mizuho Corporate Bank Ltd. in London.
The MSCI World Index of 23 developed countries rose 0.5 percent. The gauge, which posted its biggest rally in a decade last quarter, has retreated 4 percent since the start of July on speculation that earnings will signal the first global recession since World War II is far from over.
Declining Earnings
Profits fell an average 34 percent at Standard & Poor’s 500 Index companies in the second quarter and will drop 21 percent from July through September, according to analyst projections compiled by Bloomberg. That would extend the streak of quarterly profit declines to a record nine, Bloomberg data show.
Alcoa rose 7.5 percent in pre-market New York trading, helping send futures on the S&P 500 0.8 percent higher. The aluminum producer posted a loss excluding some items of 26 cents a share, narrower than analysts’ average estimate for a 38-cent loss, as production cuts and workforce reductions helped save money.
Norsk Hydro ASA, Europe’s third-biggest aluminum maker, climbed 1.9 percent on Alcoa’s results, while Rio Tinto Group, the world’s third-largest mining company, added 4.1 percent.
Daimler AG, the world’s second-biggest maker of luxury cars, gained 3.1 percent. Bank of America Corp. raised its rating on European carmakers to “overweight” from “neutral,” saying the economy may recover this year.
Copper, Oil
Copper for delivery in three months rose 2.3 percent to $4,835 a metric ton on the LME, aluminum gained 1.6 percent to $1,574 a ton and nickel added 0.6 percent to $15,041, also advancing for the first time in six days. Crude oil rose 1.8 percent to $61.23 a barrel, its first advance since June 29. Crude reached an all-time high of $147.27 a year ago.
The economic recovery is still too fragile for governments to consider unraveling spending plans designed to bolster growth, said Angel Gurria, Secretary General of the Organization for Economic Cooperation and Development. “We’ve been advocating stimulate now, consolidate later,” he told Bloomberg Television at the Group of Eight summit in L’Aquila, Italy. “You’re not going to remove the stimulus now. It’s too early.”
Bank of England
U.K. 10-year gilts tumbled as the Bank of England said it will keep its asset-purchase plan at 125 billion pounds ($202 billion). The drop pushed yields up 11 basis points to 3.72 percent. Investors had bet the central bank would increase its so-called quantitative-easing plan to 150 billion pounds, and the British Chambers of Commerce recommended two days ago that the Bank of England expand its program to revive the economy.
The pound extended gains against the dollar and the euro, climbing 1.1 percent against the greenback and 0.4 percent versus the single European currency.
Treasuries fell, with the yield on the benchmark 30-year bond rising 5 basis points to 4.24 percent, as the government prepared to sell $11 billion of the securities today in the last of a record four auctions this week.
European credit-default swaps slid, signaling an increase in perceptions of credit quality, with the high-yield Markit iTraxx Crossover Index dropping 23 basis points to 765, according to JPMorgan Chase & Co.
Government efforts to boost lending have helped thaw credit markets that froze 23 months ago after BNP Paribas SA halted withdrawals from three investment funds, saying it couldn’t “fairly” value their holdings.
Global Recession
The U.S., Europe and Japan are grappling with their first simultaneous recessions since World War II after the collapse of subprime mortgages froze credit markets and spurred almost $1.5 trillion in losses and writedowns at financial firms. The World Bank said last month that the global economy will shrink 2.9 percent this year, a deeper slump than the 1.7 percent contraction forecast in March.
The yen fell to 129.69 per euro as Reuters cited Japanese Chief Cabinet Secretary Takeo Kawamura as saying excessive currency movements are undesirable, fanning speculation the central bank may intervene in foreign-exchange markets.
Indonesia’s rupiah rose against the dollar, gaining 1.4 percent, as exit polls pointed to a landslide victory for President Susilo Bambang Yudhoyono. The currency advanced to 10,148 to the dollar as the election paved the way for policies that favor economic growth.
The MSCI Emerging Markets Index of stocks in 22 developing economies rose the most in a week, adding 0.4 percent, as commodities rallied. China’s Shanghai Composite Index rose 1.4 percent on the car-sales report.
SOURCE: Bloomberg
