U.S. Stocks Jump While Dollar Slips as Data Fuels Slow Hike Bets

(Bloomberg) -- U.S. stocks rose with Treasuries, while the dollar weakened as tepid manufacturing data out of major economies bolstered prospects for a continuation in central-bank support.

The dollar slipped from a seven-month high versus the euro on speculation the Federal Reserve’s first rate increase in nearly a decade has been priced in by investors, while yields on 10-year Treasury notes fell on expectations subsequent hikes will be gradual. The Standard & Poor’s 500 Index rebounded from Monday’s retreat, as a rally in U.K. banks kept an index of European shares near a three-month high. Metals climbed.

An unexpected contraction in American manufacturing added to speculation that the Fed won’t be in a rush to boost borrowing costs quickly, even if it chooses to hike this month. The odds of an increase remain above 70 percent before government payrolls data due Friday. While factory growth in the euro area accelerated, the slow pace of expansion didn’t alter expectations that the European Central Bank will add to stimulus Thursday.

“There’s a bit more tolerance for risk right now because indices are flat and managers have to show return somewhere,” Ron Anari, the Jersey City, New Jersey-based senior vice president of trading at ICAP Plc, said by phone. “The Fed is going to hike at some point and it might as well be now. The equity markets have got it pretty much absorbed.”

Stocks

The S&P 500 climbed 1.1 percent to 2,102.63 by 4 p.m. in New York. The index is coming off a 0.1 percent advance in November, as signs of a strengthening U.S. economy offset concerns over an imminent rate increase. The gauge risen in December in six of the past seven years and is up 2.1 percent in 2015, poised for the smallest annual gain in four years.

All of the S&P 500’s 10 main groups rose Tuesday, with health-care and banking shares performing the best.

While the MSCI All-Country World Index climbed 1 percent, the gauge of global equities is still headed for its first annual loss since 2011. Despite that, shares have wrapped up the year with gains on all but five occasions since 1988, with December posting the biggest and most frequent increases of any month, data compiled by Bloomberg show.

The S&P/TSX Composite Index jumped 1 percent after Canada’s economy grew for the first time in three quarters with gains in automotive exports and consumer spending overtaking the damage from lower oil prices.

The Stoxx Europe 600 Index slipped 0.3 percent from its highest level since August, while Asian stocks rallied, with Japanese and Australian shares leading the MSCI Asia Pacific Index up 1.9 percent, the most since Oct. 7.

Bonds

Yields on Treasuries due in a decade fell six basis points, or 0.06 percentage point, to 2.15 percent, as the fastest contraction in U.S. manufacturing since 2009 underscored expectations that the Fed will raise rates only gradually after it lifts them from near zero. Treasuries have fallen over the past two months, and in the week ended Nov. 24, hedge funds and other large speculators had amassed the most futures bets since December that two-year notes will fall.

Two-year Treasury yields, the debt most sensitive to speculation about rates, dropped two basis points to 0.91 percent.

“Every data point is hypersensitive because the clock is ticking until the Fed meeting,” said Stanley Sun, a New York- based strategist at Nomura Holdings Inc., one of 22 primary dealers that trade with the Fed. As well as Friday’s payrolls data, investors are looking forward to Fed Chair Janet Yellen’s appearance before Congress Dec. 3.

Citigroup led corporate bond sales Tuesday with a $2 billion offering in what was set to the the first day of more than $10 billion in debt sales in more than two weeks. Corporate debt fell 0.611 percent in November, paring some of October’s gains.

Emerging Markets

The MSCI Emerging Markets Index rebounded from a two-week low, climbing 1.4 percent, as benchmark gauges rallied across Asia. Hong Kong’s Hang Seng China Enterprises Index, which tracks mainland Chinese shares listed in the city, advanced for the first time in seven days.

While China’s official manufacturing purchasing managers index fell to the weakest level in more than three years, a private PMI released by Caixin Media and Markit Economics rose more than was forecast. Activity in the services sector has shown more strength, with the government’s non-manufacturing PMI indicating expansion.

A gauge of developing-nation currencies rose for the first time in five days after closing on Monday within 0.03 percent of a record-low. India’s rupee strengthened as the nation’s central bank kept borrowing costs on hold.

Turkey’s lira gained 0.7 percent, advancing for a second day, after a report showed manufacturing there expanded in November.

Brazil’s real declined after data showed Latin America’s largest economy contracted more than analysts forecast amid a political crisis and a spreading corruption scandal.

Currencies

The dollar declined versus all of its Group-of-10 peers as investors started to focus more on prospects for the Fed to tighten policy at a gradual pace in 2016. The euro was supported by a growing sense that the ECB won’t be able to exceed the already dovish market expectations for additional stimulus.

The dollar weakened 0.6 percent to $1.0625 per euro, after gaining 0.7 percent over the previous four days. The greenback touched $1.0558 on Monday, its strongest level since April 14.

Australia’s dollar climbed 1.4 percent to 73.27 U.S. cents, its highest level since Oct. 16, building on its November advance. The currency got a boost after the central bank kept interest rates unchanged.

Commodities

The London Metal Exchange LMEX Index climbed 1 percent Tuesday as copper to nickel and zinc added at least 0.8 percent.

Construction spending in the U.S., the world’s largest copper user behind China, grew more than expected in October, boosted by the biggest surge in federal outlays since October 2006. In China, top suppliers including Jiangxi Copper Co. and Tongling Nonferrous Metals Group Co. pledged to reduce output next year by 350,000 metric tons, after a meeting in Shanghai, according to a statement from 10 smelters.

Oil futures in New York fell 0.5 percent to $41.85 a barrel before this week’s meeting of the Organization of Petroleum Exporting Countries. Crude is coming off its biggest monthly decline since July and is almost 40 percent in the past year amid a persistent global supply glut. Brent futures lost 0.5 percent in London.

The weaker dollar helped gold advance a second day. Gold for immediate delivery rose 0.4 percent to $1,069.27 an ounce as silver and platinum also rallied.

--With assistance from Cecile Vannucci, Stephen Kirkland, Neil Denslow, Eshe Nelson, Oliver Renick, Alan Soughley, Cordell Eddings and Emma O'Brien.

To contact the reporter on this story: Jeremy Herron in New York at jherron8@bloomberg.net To contact the editors responsible for this story: Emma O'Brien at eobrien6@bloomberg.net; Jeff Sutherland at jsutherlan13@bloomberg.net Jeremy Herron