U.S. and European stocks rose, erasing all of last week's losses for the Standard & Poor's 500 Index, as companies announced $26.9 billion in global deals after equities traded near their cheapest relative to earnings since 2009.
U.S. and European stocks rose, erasing all of last week’s losses for the Standard & Poor’s 500 Index, as companies announced $26.9 billion in global deals after equities traded near their cheapest relative to earnings since 2009. Credit risk fell. The Swiss franc and yen weakened.
The S&P 500 advanced 1.8 percent to 1,200.45 at 3:32 p.m. in New York after losing 1.7 percent last week. The Stoxx Europe 600 Index added 0.2 percent. The franc depreciated against all 16 of its most-traded peers. The Markit iTraxx SovX Western Europe Index of credit-default swaps insuring the debt of 15 governments fell to the lowest level this month. The 10-year Treasury note yield rose four basis points to 2.30 percent. Oil rallied as much as 2.9 percent.
Global markets are stabilizing following a week of record swings in U.S. stocks after S&P cut the nation’s credit rating. Motorola Mobility Holdings Inc. surged 56 percent to lead gains in the S&P 500 today after Google Inc. offered to buy the company. The Swiss government and central bank are in talks about a possible target for the franc to halt its gains, SonntagsZeitung reported, citing unidentified people.
“M&A activity in general, and this is M&A with a capital M and a capital A, is generally synonymous with a relatively healthy economy and good things to come and a bull market,” Richard Weiss, a Mountain View, California-based senior money manager at American Century Investments, said in a Bloomberg Television interview. His firm oversees about $108 billion. “Although it remains to be seen whether that’s true, it’s generally a positive.”
Three-Day Gain
The S&P 500 is up 7.1 percent since Aug. 10, its biggest three-day rally since March 2009, as valuations and the pickup in takeovers overshadowed more signs the economic recovery is slowing. The Federal Reserve Bank of New York’s general economic index fell to minus 7.7 from minus 3.8 in July. The median forecast in a Bloomberg survey called for a reading of zero, the dividing line between expansion and contraction.
Federal Reserve Bank of Atlanta President Dennis Lockhart said the central bank could purchase more Treasuries or alter its balance sheet if the U.S. economy were to slow further. “If additional actions are required, I can assure you the Federal Reserve is not out of bullets,” Lockhart said today in a speech in Florence, Alabama.
Motorola Mobility, maker of the Droid smartphone, jumped the most since it was spun off from Motorola Inc. last year after Google Inc. said it agreed to buy the company for about $12.5 billion. Bank of America Corp. climbed 7.8 percent as the biggest U.S. bank by assets said it will exit the international credit-card business, including the $8.6 billion sale of its Canadian card unit to Toronto-Dominion Bank.
More Deals
Time Warner Cable Inc., the second-largest U.S. cable- television operator, agreed to buy Carlyle Group’s Insight Communications Co. for $3 billion in cash. Provimi SA said Cargill Inc. offered to buy the company for an enterprise value of 1.5 billion euros.
U.S. equity swings last week were unprecedented, according to data compiled by Birinyi Associates Inc., Bloomberg and Howard Silverblatt, a senior index analyst at S&P. The index fell or rose more than 4.4 percent on each of the first four days of last week, reversing direction in a back-and-forth pattern not seen at that magnitude in the history of the benchmark gauge for U.S. stocks. The S&P 500 finished the week with a two-day rally of 5.2 percent.
“We’re bouncing off the bottoms and people don’t feel terrible about valuations,” Sarah Hunt, portfolio manager at Alpine Mutual Funds in Purchase, New York, said in a telephone interview. Alpine oversees about $6 billion. “The M&A deals make investors feel more comfortable because it shows that this meltdown isn’t going to wipe out valuations forever,” she said. “There are good stocks, which are worth buying with the caveat that you have to be able to handle the volatility.”
Global Advance
The MSCI All-Country World Index climbed 2 percent, trading at 12.5 times earnings after reaching 11.8 on Aug. 10, the lowest since March 2009. Japan’s Nikkei 225 Stock Average rallied 1.4 percent as the country’s economy contracted less than economists estimated in the second quarter.
Four stocks advanced for each that declined in Europe’s Stoxx 600. Aker Drilling ASA surged 96 percent after Transocean Ltd., the world’s largest offshore driller, offered to buy the Norwegian company for 7.9 billion kroner ($1.4 billion).
The MSCI Emerging Markets Index increased 2.6 percent, the biggest advance on a closing basis since June 2010 as Morgan Stanley raised its equity allocation for developing-nation stocks to the highest level since April 2009. The Hang Seng China Enterprises Index rallied 4.7 percent, the most since June 2009, while gauges in Taiwan, Russia, Hungary and the Czech Republic rallied more than 2.3 percent.
Stronger Forint
The Hungarian forint strengthened 4 percent against the franc, climbing a record 13 percent in three days. Markets in India, South Korea and Poland were shut for holidays.
The franc depreciated as much as 2.7 percent versus the dollar and tumbled as much as 10 percent over the three days against the euro, the most since the start of the common currency in 1999. The plans to target the exchange rate of the franc are ready and the Swiss National Bank may set a target in “coming days,” the SonntagsZeitung newspaper reported yesterday. Walter Meier, a spokesman for the SNB, declined to comment.
The yen dropped against 15 of 16 major counterparts, weakening the most versus the Swedish krona, the Norwegian krone and Australian dollar after Japanese Finance Minister Yoshihiko Noda indicated he’s ready to intervene in markets again.
The euro advanced 1.4 percent to $1.4449, rising for the third consecutive day, while the Dollar Index, which tracks the U.S. currency against those of six trading partners, declined 1 percent.
Default Swaps
Credit-default swaps on the Markit iTraxx SovX gauge fell 7.1 basis points to 276. Contracts on Italy dropped 12 basis points to 342 at the close of trading in London, after surging to a record 391 on Aug. 10, according to CMA. Swaps protecting Spanish debt declined seven basis points to 346, compared with an all-time high of 430 on Aug. 4.
The yield on the 30-year Treasury bond climbed three basis points. Global demand for U.S. stocks, bonds and other financial assets weakened in June from a month earlier as the White House and Congress wrangled over raising the debt limit, government figures show.
Net buying of long-term equities, notes and bonds totaled $3.7 billion during the month compared with net buying of $24.2 billion in May, according to statistics issued by the U.S. Treasury Department. Including short-term securities such as stock swaps, foreigners sold a net $29.5 billion compared with net selling of $48.8 billion the previous month.
Oil Rallies
Crude oil futures gained 2.9 percent, bolstered by corporate deal announcements and a report that Japan’s gross domestic product shrank at an annualized 1.3 percent rate in the three months ended June 30. The median forecast of economists was for a 2.5 percent drop.
The Thomson Reuters/Jefferies CRB Commodity Index climbed 1.2 percent. Corn rose to a two-month high and soybeans gained for a fourth straight session on speculation that dry weather will damage maturing crops in the U.S, the world’s biggest producer and exporter.
--Bloomberg News--
