By Oliver Renick and Jeremy Herron
U.S. stocks rose and commodities rallied on a report that China’s central bank is boosting stimulus measures. Treasuries advanced while the dollar fell on bets the Federal Reserve won’t be in a hurry to raise rates.
The Standard & Poor’s 500 Index rose 0.9 percent at 1:50 p.m. in New York, the biggest gain in a month. Copper rallied 2.4 percent and U.S. crude surged 2.4 percent. The Stoxx Europe 600 dropped 0.3 percent, while emerging-market equities advanced after eight declines. Treasury 10-year note yields slipped 1.5 basis points to 2.57 percent.
China provided 500 billion yuan ($81.4 billion) of liquidity to the country’s five biggest banks as Premier Li Keqiang steps up stimulus to support economic growth, Sina.com reported. Wall Street Journal reporter Jon Hilsenrath said in a Web video that he thinks Fed policy makers will maintain the pledge to keep benchmark overnight rates low for a “considerable time” after the bank ends its bond purchases known as quantitative easing.
“The market sees the letters ’Q’ and ’E’ combined with China and it’s Happy New Year to the money printers and that’s what the jump is,” Joe Saluzzi, co-head of equity trading at Chatham, New Jersey-based Themis Trading LLC, said via phone. “They want the game to continue. They may not know how or why it’s happening but get some new QE money in there and that’s how the market reacts.”
The People’s Bank of China yesterday started providing the banks with 100 billion yuan each through standing lending-facilities with durations of three months, the news website said, citing banking analyst Qiu Guanhua at Guotai Junan Securities Co. The PBOC will complete the process today.
Global central banks from Japan to Europe and the U.S. have kept interest rates low and provided additional liquidity during a five-year bull market. The Fed is on track to end its monthly bond-buying next month. The move by China’s central bank today comes after increasing signs that growth is slowing in the world’s second-largest economy.
U.S. equities rallied on the news after earlier trading little changed. Energy stocks jumped 1.8 percent as a group, with Exxon Mobil Corp. adding 1.6 percent to lead gains in 29 of 30 stocks in the Dow Jones Industrial Average. Utilities in the S&P 500 added 1.3 percent. Technology stocks climbed 0.7 percent after a sell-off yesterday.
The Bloomberg Commodity Index (BCOM) reversed earlier losses to trade 0.6 percent higher. China is the world’s biggest consumer of commodities. West Texas Intermediate and Brent crudes extended gains on the China announcement. They had risen earlier after OPEC’s Secretary General said the group may cut output targets next year.
The rate on 10-year Treasuries headed for a second straight decline for the first time this month. Fed officials meet to consider how much progress toward their goals of full employment and stable inflation would be needed to prompt the first rate increase since 2006. Wholesale prices were little changed in August, the Labor Department reported today, restrained by a plunge in gasoline prices.
Chair Janet Yellen will hold a press conference after the policy announcement tomorrow. She has said interest rates will remain low for a “considerable time” after it completes its monthly bond purchases.
“We are getting a stronger tone to the market with the idea being floated that the Fed language could stay relatively the same, which would represent a ‘stay the course’ mentality and would be perceived as dovish,” said Jason Rogan, managing director of U.S. government trading at Guggenheim Securities, a New York-based brokerage for institutional investors. “If they do take that out the market would price in a Fed that is closer to raising rates.”
The MSCI Emerging Markets Index erased earlier losses to rise 0.2 percent, headed for its first gain after eight straight losses, the longest slump since November. The Chinese data on direct-foreign investment had fueled concern that the rate of economic growth was slowing.
The Shanghai Composite Index retreated 1.8 percent and the Hang Seng China Enterprises Index (HSCEI) of mainland companies listed in Hong Kong lost 1.1 percent, dropping to the lowest level since July 22. Markets in Asia closed before the report of the lending program from China’s central bank.
The ruble was little changed after weakening as much as 1.3 percent versus the dollar. The Micex Index rose 1.6 percent. Ukraine’s July 2017 Eurobond fell for a third day, lifting the yield up 15 basis points to a two-week high of 13.42 percent.
Ukraine’s parliament approved a law giving special status to the country’s two easternmost regions while a cease-fire, now in its 11th day, came under threat as some separatists called for a resumption of fighting.
The Stoxx 600 retreated 0.3 percent, its eighth day without an advance since closing at a two-month high on Sept. 4. All but two of the 19 industry groups declined today, with real-estate shares pacing losses.
In the U.K., the FTSE 100 Index dropped 0.2 percent before the Scottish referendum on Sept. 18.
Prime Minister David Cameron made a final plea to Scotland’s voters, urging them to step back from an illusory “dream” of risk-free independence and avoid the irreversible breakup that would come with a “yes” vote.
In Germany, investor confidence fell for a ninth consecutive month, as measured by the ZEW Center for European Economic Research. The gauge aims to predict economic developments in six months.
“Investors are a bit more cautious on European equities after the slowdown in growth over the summer,” said Espen Furnes, who helps oversee about $85 billion at Storebrand Asset Management in Oslo. “No doubt the Scottish referendum especially is a source of uncertainty. The risk of a more hawkish Fed could also dampen investors’ appetite for stocks.”
To contact the editors responsible for this story: Lynn Thomasson at [email protected] Jeremy Herron, Michael P. Regan