U.S. Stocks Reach Records on Republican Win; Oil Rebounds

U.S. stocks climbed to records as the Republican Party won control of the Senate and a rebound in oil fueled gains in energy shares. European equities rose on better-than-estimated earnings before the central bank meets, while precious metals slid amid a strengthening dollar.

The Standard & Poor’s 500 Index added 0.6 percent to an all-time high of 2,023.57 by 4 p.m. in New York, while the Dow Jones Industrial Average reached a record 17,484.53. Oil rallied 1.9 percent as U.S. stockpiles climbed less than predicted. The Stoxx Europe 600 Index rose 1.7 percent. The dollar gained to its highest level since 2007 versus the yen as a slump in iron-ore prices sent Australia’s currency to a four-year low. Gold dropped to its lowest price since April 2010.

Republicans picked up seven Senate seats and could gain more, allowing Mitch McConnell, Republican leader of the chamber since 2007, to set the legislative agenda for the final two years of Barack Obama’s presidency. A private report showed U.S. companies added more workers in October than the previous month, before Labor Department payrolls data due later this week. The European Central Bank is set to meet tomorrow for the first time since the Bank of Japan expanded its record stimulus.

“With the election results, the strong ISM manufacturing result from the other day and today’s employment report, it continues to improve investor sentiment,” Robert Pavlik, who helps oversee $4.5 billion as chief market strategist at Banyan Partners LLC in New York, said by phone. “The market also likes the fact that the ECB might deliver some additional quantitative easing-type measures.”

Midterm Effect

The S&P 500 ended the day higher for the first time this week, bringing its advance this year to 9.5 percent. The Dow added 0.6 percent in a second day of gains.
Fourth quarters during years when midterm elections are held have produced an average gain of 8 percent over the past 65 years, according to the Stock Trader’s Almanac. They’ve been followed by rallies of almost that much in the next three months, making the average 16 percent two-quarter rally the best combination of the election cycles.
The S&P 500 has risen an average 15.1 percent in calendar years when a Democratic president has been opposed by a Republican-controlled Congress since 1945, according to S&P Capital IQ equity strategist Sam Stovall. To be fair, the returns are nearly identical when Republicans control both the White House and Congress.

‘Business Friendly’

“Republicans are seen as more business friendly, so it’s not surprising if markets react positively to the midterm results,” Veronika Pechlaner, who helps oversee about $2.3 billion at Ashburton Ltd., said by phone from Jersey, the Channel Islands.
Alpha Natural Resources Inc. and Peabody Energy Corp. paced gains among coal producers amid expectations Republicans will oppose restrictions to use of the resource. TransCanada Corp. (TRP) advanced 3 percent in Toronto on speculation Republican victories will bolster support for the Keystone XL pipeline.
Hospital operators Tenet Healthcare Corp. and Community Health Systems Inc. fell more than 3 percent amid concern Republicans will repeal the Patient Protection and Affordable Care Act, dubbed Obamacare.
The Nasdaq 100 Index reversed an earlier advance of as much as 0.6 percent to end the session down 0.1 percent as Google Inc., Intel Corp. and Amazon.com Inc. fell more than 1 percent. TripAdvisor Inc. slid 14 percent after reporting lower-than-estimated earnings yesterday.

Oil Rebound

Energy shares gained 1.8 percent as a group today as they rebounded from yesterday’s declines. Oil prices slid yesterday amid concern Saudi Arabia cutting the price it charges U.S. buyers for crude signaled OPEC producers were trying to maintain market share over propping up prices.
Devon Energy Corp. jumped 10 percent while Chesapeake Energy Corp. and EOG Resources Inc. gained at least 6.4 percent. Exxon Mobil Corp. rose for the first time this week, adding 0.6 percent.
West Texas Intermediate crude rebounded from a three-year low, climbing to $78.68 a barrel after a government report showed that U.S. oil supplies increased less than analysts expected last week, while refineries increased operating rates. Brent oil rallied from a four-year low in London.
Saudi Arabia’s Oil Minister Ali Al-Naimi will attend a conference hosted by fellow Organization of Petroleum Exporting Countries member Venezuela tomorrow, according to embassy officials in Caracas. Venezuela is preparing a proposal to defend the oil price for OPEC’s Nov. 27 meeting, President Nicolas Maduro said in comments broadcast on state television Oct. 31.

Earnings Analysis

S&P 500 companies are beating analysts’ earnings estimates at the fastest pace in four years, while recent economic data have pointed to improvements in the U.S. labor market and consumer sentiment. Of the S&P 500 members that have reported their latest quarterly results, 82 percent topped profit projections, while 61 percent exceeded sales estimates, according to data compiled by Bloomberg.
Time Warner Inc. jumped 4 percent as the company topped analysts’ profit estimates after collecting higher fees for its TV channels.
Data today showed service industries in the U.S. sustained a faster pace of expansion in October than in the first half of the year, indicating the world’s largest economy is overcoming a global slowdown. Earlier this week, figures showed the ISM index of U.S. manufacturing climbed in October to 59, matching August at the highest level since March 2011.

Payrolls Data

Companies in the U.S. added 230,000 workers to payrolls in October, figures from the ADP Research Institute showed. The private data came before a government report this week that may show private payrolls rose by 223,000 last month, according to a Bloomberg survey of economists. The jobless rate probably held at a six-year low of 5.9 percent, the survey showed.
Improving sentiment, job growth and lower gasoline prices will probably help underpin domestic demand even as companies grapple with slowing global markets.
While the Federal Reserve heads toward raising interest rates after ending its bond buying program last month, speculation is building that ECB President Mario Draghi will bow to intensifying pressure to counter low inflation and flagging economic growth by expanding asset purchases. The Bank of Japan surprised markets Oct. 31 by expanding its monetary-base target in a bid to ward off deflation.

No Surprises

“The European recovery is fragile but the central bank is being more accommodative,” Audrey Kaplan, the head of international equities for Federated Investors Inc., which manages about $350 billion in assets, said by phone in New York. “I don’t expect any big surprises this week. They’ve already announced some unprecedented quantitative easing and asset purchasing plans so they’ll want to see how those policies play out.”
About eight shares advanced for every one that declined in the Stoxx 600, which has rebounded 8.5 percent from this year’s low reached Oct. 16.
Marks & Spencer Group Plc rallied 9.7 percent, the most since 2009, after the U.K.’s biggest clothing retailer raised its forecast for full-year profitability. Hannover Re gained 1.9 percent as the world’s third-largest reinsurer by market value reported a 21 percent jump in profit.
Natixis SA climbed 2.3 percent after saying profit jumped on higher asset-management and insurance revenue. Outokumpu Oyj dropped 9.2 percent, dragging a gauge of European commodity producers down for a third day. The Finnish steelmaker reported a third-quarter net loss that was wider than analysts predicted.

Dollar Gains

The dollar is extending its lead as the year’s best-performing major currency as the U.S. economy gains momentum.
The greenback gained 1 percent to 114.73 yen today, and touched 114.84, its highest level since November 2007. Japan’s currency is down about 5 percent since the BOJ’s stimulus move was announced. Governor Haruhiko Kuroda said today that he saw no limit to steps the central bank may take to defeat deflation. The U.S. currency added 0.5 percent to $1.2483 per euro, approaching its strongest level in two years.
Australia’s dollar, known as the Aussie, slid as much as 2 percent to 85.65 U.S. cents, the lowest intraday level since July 2010.
The price of iron ore, Australia’s biggest export earner, at China’s Qingdao port sank 2 percent today to $76.46 a dry metric ton, the lowest level since September 2009. Prices slid as China, the world’s biggest user of the material, ordered some steel mills to reduce production just as increased supplies exacerbate a global surplus. China is curbing some factory output to clear air in Beijing before a summit of the Asia Pacific Economic Cooperation forum.

Precious Metals

Yields on 10-year U.S. Treasuries rose one basis point, or 0.01 percentage point, to 2.34 percent before the government payrolls data.
Gold tumbled 2.1 percent on the spot market to $1,143.40 an ounce, the lowest level since April 2010. Silver dropped 4.5 percent, platinum slid 1.6 percent and palladium lost 3.6 percent amid a selloff in precious metals.
Holdings in the SPDR Gold Trust slid 0.3 percent yesterday to 738.8 metric tons, their lowest level since September 2008, when Lehman Brothers Holdings Inc. collapsed. Falling oil prices and the end of Fed asset purchases have diminished demand for gold as an inflation hedge.

Ruble Retreat

The MSCI Emerging Markets Index slipped for a third straight day, declining 1 percent, led by commodity producers.
The ruble slid as much as 3.1 percent to 44.94 per dollar, a record low, as Russia’s central bank moved closer to allowing the currency to trade freely. The Micex Index in Moscow added 0.3 percent as Russian markets resumed following yesterday’s holiday.
The Bank of Russia said that while it was abandoning its previous currency-intervention policy and will spend $350 million just once a day, it may conduct additional interventions of an undisclosed size to ward off “threats” to the country’s financial stability. The ruble briefly pared losses after the regulator said that it didn’t exclude more interest-rate increases.
The Hang Seng China Enterprises Index of mainland Chinese companies listed in Hong Kong dropped 1 percent, the most in three weeks. The Shanghai Composite Index lost 0.5 percent, falling for the first time in seven days, while Japan’s Topix index (TPX) extended gains into a fifth day, rising 0.2 percent to a more-than six-year high.

Source Url:http://www.bloomberg.com/news/2014-11-04/japan-futures-drop-amid-yen-gains-as-crude-holds-retreat.html