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S&P 500 Touches Record, Ukraine Stocks Jump; Coffee Gains

By Stephen Kirkland and Lu Wang
February 24, 2014 4:29 PM EST 30 Comments
Stock Board in Shanghai
Stock Board in Shanghai

U.S. equities rallied, with the Standard & Poor’s 500 Index touching an intraday record and all but erasing its 2014 decline, amid confidence the economy is strong enough to weather cuts to monetary stimulus. Commodities gained while Ukrainian shares jumped the most since 2010.

The S&P 500 (SPX) advanced 0.6 percent to 1,847.61, less than one point shy of the record close reached Jan. 15 after paring gains of as much as 1.2 percent. The Ukrainian Equities Index jumped 15 percent on speculation the nation will get international aid after the president was ousted. Ten-year Treasury yields rose one basis point to 2.75 percent by 4:25 p.m. in New York. Coffee, sugar, silver and oil led commodities higher. The shekel weakened after the Bank of Israel cut interest rates.

Janet Yellen, in her first global forum as Federal Reserve chair, won praise at the Group of 20 nations meeting for helping ease concern over emerging markets as the U.S. tapers stimulus. China’s Industrial Bank Co. temporarily tightened financing for property developers as it takes stock of market conditions and prepares new credit policies, a statement showed. The U.S. and the European Union said they’re ready to help Ukraine as lawmakers work to set up a coalition government.

“The market is really willing to focus on the positives and dismiss the negatives,” Mark Freeman, who oversees about $18.9 billion as chief investment officer at Westwood Holdings Group Inc. in Dallas, said by phone. “We’re just seeing a shift in mentality. The market is, on the forward basis, operating on the assumption that the economy is going to continue to improve and corporate profits are going to continue to grow at some rate.”

Retreat, Recovery

The S&P 500 slumped as much as 5.8 percent after closing at the highest level since its inception Jan. 15 as investor concern over continuing cuts in the Fed’s bond buying program fueled a rout in emerging markets. The index has rebounded from a low touched Feb. 3 and climbed to within six points of its 1,848.38 record close every day last week.

Gauges of energy, industrial and financial stocks rose at least 0.8 percent to lead gains in eight of the 10 main industry groups in the S&P 500 today, with telephone and commodity companies as well as utilities posting the only declines.

Humana Inc. rallied 11 percent for the biggest gain in the S&P 500 after saying a rate cut in 2015 for Medicare Advantage patients will be less than an earlier estimate. EBay Inc. climbed 3.1 percent as investor Carl Icahn pushed for the spin-off of PayPal.

Turned Bearish

Investors using S&P 500 futures turned bearish this month for the first time since September 2012, concerned that emerging-market turmoil and signs of slower growth will drag equities down.

Hedge funds and other large speculators have been net short for the last two weeks, wagering that the S&P 500 will decrease in value, according to data compiled by Bloomberg and the U.S. Commodity Futures Trading Commission. The Chicago Board Options Exchange Volatility Index, used to hedge against S&P 500 moves, rose above its average since 2012 last week as investors sought protection against a slide in stocks.

The Shanghai Composite Index dropped 1.8 percent, the most since Jan. 6, and the Hang Seng China Enterprises Index of mainland companies listed in Hong Kong fell 1.4 percent.

“China is the main risk for EM assets,” Maarten-Jan Bakkum, an emerging-markets strategist at ING Investment Management Co. in The Hague, said by e-mail. “Slower growth in Chinese real-estate investment would have a big impact on Chinese growth and on EM growth as the emerging world is very dependent on Chinese demand.”

G-20 Statement

The world’s major economies pledged at the G-20 to maintain generally accommodative policies and pay heed to the international repercussions of their actions. Before the concluding communique was released yesterday in Sydney, India and South Africa were among nations calling for the Fed to consider the impact beyond the U.S. as it tapers stimulatory asset purchases.

Officials from the U.K. and Australia had backed the Fed’s right to set policy to its own needs and said some were using the impact of tapering as an excuse for domestic failings.

The shekel weakened 0.4 percent to 3.5183 per dollar. The Bank of Israel unexpectedly lowered its benchmark lending rate for the first time in five months, as inflation slows and growth remains muted. The five-member monetary policy panel, led by Governor Karnit Flug, cut borrowing costs by a 25 basis points, or 0.25 percentage point, to 0.75 percent. Five of 24 economists surveyed by Bloomberg predicted the decision, while the remainder estimated there would be no cut.

Ukrainian Bonds

Ukraine’s April 2023 dollar bonds rose a third day, sending yields down 1 percentage point to 9.25 percent, the lowest level in about a month. The country’s interim government said it needs $35 billion of aid to avoid default as it issued an arrest warrant for President Viktor Yanukovych for his role in last week’s violence.

The Stoxx Europe 600 Index added 0.6 percent to a six-year high.

HSBC Holdings Plc dropped 2.8 percent after Europe’s largest bank reported full-year pretax profit that missed analysts’ estimates. PostNL NV lost 20 percent after the Dutch mail service posted a full-year loss that was wider than forecast. RSA Insurance Group Plc slid 3.7 percent after the U.K. company said it is considering a rights offer.

Volkswagen AG tumbled 6.5 percent after offering to buy the remaining stake in Swedish truckmaker Scania AB for 6.7 billion euros ($9.2 billion). Scania soared 32 percent to its highest price since July 2007.

Commodity Markets

Asian index futures climbed, with contracts on Japan’s Nikkei 225 Stock Average gaining 1.1 percent in Osaka and in Chicago. Futures on Australia’s S&P/ASX 200 Index, South Korea’s Kospi Index and the Hang Seng and Hang Seng China Enterprises gauges in Hong Kong climbed at least 0.2 percent.

Coffee extended a rally in New York, rising 4 percent to lead commodities higher, as dry weather may cut output in Brazil, the world’s largest producer. The drought could potentially push the global coffee market into its first shortage in four years. Sugar advanced 3.6 percent.

U.S. natural gas turned lower, sinking 11 percent after rallying as much as 5.8 percent to the highest level since December 2008. A midday update to the National Weather Service’s Global Forecast System model showed higher temperatures than previously forecast in the Midwest from March 6 to March 10. West Texas Intermediate oil added 0.6 percent at $102.82 a barrel.

Copper fell 0.7 percent to $7,103.25 a metric ton in London. Gold climbed 0.9 percent to $1,336.94 an ounce, a third consecutive advance.

The euro weakened against 13 of its 16 major peers as reports showed euro-area inflation stayed below the European Central Bank’s 2 percent target for a fourth month.

The cost of insuring high-yield corporate bonds in euros against losses fell to the lowest since October 2007, with the Markit iTraxx Crossover index of credit-default swaps on 50 European companies with speculative-grade ratings dropping almost 8 basis point to 266 basis points.

To contact the reporters on this story: Stephen Kirkland in London at skirkland@bloomberg.net; Lu Wang in New York at lwang8@bloomberg.net

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

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