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Stocks Gain on German Confidence, M&A; Yen Strengthens

By Nikolaj Gammeltoft and Claudia Carpenter
February 19, 2013 5:10 PM EST 1 Comments
European Shares Gain Before Zew
European Shares Gain Before Zew

Stocks rose, with the Standard & Poor’s 500 Index climbing to a five-year high, as German investor confidence increased and takeover speculation grew in the U.S. The yen strengthened while Chinese shares slid the most in a month and industrial metals declined.

The S&P 500 gained 0.7 percent to 1,530.94 at 4 p.m. in New York, the highest level since the month of its record in October 2007. The Stoxx Europe 600 Index advanced 1.1 percent as Danone SA jumped the most in more than two years after reporting earnings. The yen climbed against 14 of 16 major peers. The Shanghai Composite Index sank 1.6 percent on concern the government may introduce measures to curb property prices. Nickel slid 2.6 percent, while natural gas surged.

A gauge of German investor confidence climbed to the highest level since April 2010. In the U.S., Office Depot Inc. and OfficeMax Inc. were said to be discussing a merger as soon as this week, fueling speculation that takeovers will accelerate. Japanese Finance Minister Taro Aso ruled out buying foreign bonds a day after Prime Minister Shinzo Abe told parliament that it was “one idea” for monetary policy.

“We have positive information coming out of Germany, which is leading people to be more confident about the European economy, and that’s spreading to the U.S. markets,” Tom Mangan, who helps oversee about $3.6 billion as a money manager at James Investment Research Inc. in Xenia, Ohio, said in a phone interview. “The M&A deals we’ve seen indicate that corporations are redeploying capital in a productive manner.”

The S&P 500 has advanced for seven straight weeks, the longest streak since January 2011. Price swings in U.S. stocks are narrowing the most since the Great Depression in a signal of reviving investor confidence.

Price Swings

Average daily price moves for the S&P 500 have fallen to 0.43 percent in 2013 from an average 1.08 percent the past five years, the steepest decline for any corresponding period since the 1930s, according to data compiled by Bloomberg. The last time the annual average was this low was 1995, when the S&P 500 surged 34 percent and doubled in the next four years. Stocks gain an average 17 percent during years when the gyrations are so small, according to data going back to 1928.

The S&P 500 is up more than 7.3 percent so far in 2013 and trading about 2.2 percent below its record reached in 2007. U.S. 10-year Treasury yields have hovered around 2 percent in the past week, rising two basis points to 2.02 percent today.

Investors are piling into stocks because the Federal Reserve’s bond purchases have depressed interest rates on Treasuries and created an artificial environment, according to Nassim Nicholas Taleb, professor at New York University and author of “The Black Swan” and “Antifragile: Things That Gain From Disorder.”

‘Organic Nature’

“I am forced to buy stocks myself because I’m afraid of bonds,” Taleb said in an interview on Bloomberg Television’s “Market Makers” with Erik Schatzker and Sara Eisen. “We have never lived in a world as artificial as today, as far away from the organic nature of how things should be. Any environment that cannot convert crisis to fuel is doomed.”

Office Depot climbed 9.4 percent and OfficeMax rallied 21 percent. The two office-supplies retailers are discussing a merger with a deal possible this week, said a person familiar with the matter. The companies have been discussing a potential stock swap that would create a single office-supply retailer to compete with Staples Inc., said the person, who asked not to be identified because the talks are private.

‘Good Sentiment’

Best Buy Co. advanced 2.7 percent after Barclays Plc recommended buying shares in the electronics retailer. Staples also jumped. Almost $40 billion in deals were announced in the U.S. on Feb. 14, bringing the total this month to more than $140 billion, according to data compiled by Bloomberg. That already surpassed the total of $99.6 billion during the first two months of 2012.

“More deals out there do create a good sentiment,” Kevin Divney, chief investment officer at Beaconcrest Capital Management, said in an interview. “It’s a positive now because CEOs now are looking further out,” he said. “If we can extend horizons it makes for better strategic decisions.”

Dell Inc., the computer maker planning to go private in a $24.4 billion deal, added 0.7 percent as of 5:08 p.m. in New York. After the market closed, the company reported fiscal fourth-quarter sales and profit that topped analysts’ estimates, a sign of buoyant demand for servers and software.

About eight shares advanced for each one that fell in the Stoxx 600. Danone rallied 5.9 percent for the biggest gain since May 2010 as the owner of Evian bottled-water and Activia yogurt posted fourth-quarter sales that beat estimates and announced plans to cut 900 jobs. Vodafone Group Plc slid 2 percent as Sanford C. Bernstein & Co. downgraded the shares, saying the mobile-phone company faces “structural decline.”

German Confidence

The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations, which aims to predict economic developments six months in advance, climbed to 48.2 from 31.5 in January. That’s the highest since April 2010.

The yen advanced 0.2 percent to 125.26 per euro. Abe told parliament yesterday that buying foreign bonds “exists as one idea” for monetary policy and the Bank of Japan law may be revised if the central bank fails to get results.

The Canadian dollar fell to the lowest level against its U.S. counterpart since July as policy makers in the world’s largest economy seek to avoid budget cuts, known as sequestration, set to begin next month. The loonie, as the currency is nicknamed, fell as much as 0.3 percent to 98.64 U.S. cents.

The Shanghai Composite Index dropped for a second day after a weeklong Lunar New Year break. A gauge of property stocks in the index slid 4.6 percent after China Business News said the government may impose real-estate curbs around a legislative meeting in March.

Carbon Permits

European Union carbon permits lost as much as 20 percent after the European Parliament’s environment committee postponed a decision on whether to authorize its chairman to start negotiations with national governments on a proposal to tackle a record glut of permits. The contract slid as much as 1 euro to 4.09 euros a ton on ICE Futures Exchange in London. The committee approved a plan by the European Commission to temporary withhold credits.

Nickel tumbled 2.6 percent $17,390 a metric ton in London. Aluminum, lead and copper also fell. China is the biggest consumer of industrial metals.

Soybeans rallied 3 percent in Chicago. Farmers in Argentina, the third-biggest shipper, have sold 35 percent fewer soybeans from the coming harvest than at this time last year, newspaper Clarin reported, citing Agriculture Ministry data. They are delaying sales on expectations that the depreciation of the peso will accelerate, according to the report.

Natural Gas, Lumber

Natural gas surged 3.8 percent on speculation colder weather across the U.S. in early March will spur fuel use. Oil traded in New York increased 0.8 percent to $96.66 a barrel

Lumber fell the most in two weeks, losing 2.5 percent to $389.70 per 1,000 board feet, as confidence among U.S. homebuilders unexpectedly dropped in February, signaling slower demand.

Builder sentiment in February fell to 46 from January’s 47, which matched the highest reading since April 2006, a National Association of Home Builders/Wells Fargo report showed today. The median forecast in a Bloomberg survey of economists projected a rise to 48. Lumber prices surged 42 percent in the past 12 months on signs of a rebound in the U.S. housing industry.

The MSCI Emerging Markets Index added 0.1 percent. Russia’s Micex Index added 0.8 percent, rising for a second day. Dubai’s benchmark index jumped to a three-year high as Emirates Integrated Telecommunications Co., a phone company known as Du, surged after proposing higher dividends. Brazil’s Bovespa slipped 0.5 percent after gaining as much as 0.8 percent earlier.

To contact the reporters on this story: Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.net; Claudia Carpenter in London at ccarpenter2@bloomberg.net

To contact the editor responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net

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