U.S. Stocks Pare Gains as Treasuries Retreat on Stimulus Bets

(Bloomberg) --U.S. stocks pared gains, while the S&P 500 Index extended all-time highs amid corporate results that pointed to resilience in the global economy. Treasuries and the yen tumbled as speculation central banks will add stimulus sapped demand for havens.

The MSCI All-Country World Index climbed a sixth day, the longest stretch since October, while emerging-market currencies strengthened on higher commodity prices. The Japanese yen slumped on speculation Prime Minister Shinzo Abe is contemplating so-called helicopter money to revive the nation's economy. The pound surged as the Bank of England kept interest rates unchanged in its first decision since the U.K. voted to leave the European Union.

The rebound in equities has added more than $4 trillion in value since June 27 as the U.S. economy showed signs of health and bets increased that central banks will boost stimulus. Investors were further encouraged as the corporate earnings season got off to a strong start with JPMorgan Chase & Co. and Alcoa Inc. in the U.S. exceeding analyst estimates along with Daimler AG in Europe. Riskier assets have also lured money amid the growing pool of negative-yielding bonds worldwide.

“Second-quarter earnings have been widely advertised as weak, so any positive results will help boost the stock market,” said Bruce Bittles, chief investment strategist at Milwaukee-based Robert W. Baird, which oversees $110 billion. “We're seeing a worldwide phenomenon of negative interest rates, which is driving money into the equity markets. The path of least resistance at this point is to the upside.”

Stocks

The S&P 500 added 0.3 percent at 1:23 p.m. in New York, extending a record after earlier climbing as much as 0.5 percent. The benchmark is on track for a fifth day of gains, the longest stretch since March. Should the gauge reach a record for a fourth straight day, it will be the longest streak since 2014.

JPMorgan jumped 1.6 percent, leading a rally by lenders, after the biggest U.S. bank by assets said second-quarter profit fell 1.4 percent, beating analysts' estimates as fixed-income trading revenue and loan growth jumped.

Injecting a cautionary note into the run-up today, Laurence D. Fink, who runs the world's largest asset manager as chief executive officer of BlackRock Inc., said the current rally in equities may not be justified and won't last unless earnings pick up. “If we don't see better-than-anticipated corporate earnings I think the rally will be shortlived,” Fink, 63, said in an interview Thursday.

Analysts came into the second-quarter earning season predicting S&P 500 profits will drop by 5.7 percent, which would make it the fifth straight quarterly decline, the longest since 2009.

The Stoxx Europe 600 Index rose 0.8 percent, paring its losses since Britain's referendum on June 23. The U.K.'s benchmark FTSE 100 Index erased gains after the BOE's decision to slip 0.2 percent. A gauge of European lenders rallied for the fifth time in six days. UniCredit SpA, the Italian lender that's selling assets to boost capital, jumped after Citigroup Inc. advised investors to buy the stock.

The MSCI Emerging Markets Index added 1.2 percent in its longest winning streak since April. The gauge has jumped more than 9 percent in 2016 and trades at the highest valuation in more than a year. Meanwhile, the MSCI World Index of developed markets has gained about 0.6 percent in the period.

Currencies

The yen weakened 0.8 percent to 105.35 per dollar, after earlier strengthening as much as 0.5 percent. Former Federal Reserve chief Bernanke met Japanese leaders in Tokyo this week after earlier in the year floating the idea of helicopter money, which involves the central bank directly funding government spending, with one of Abe's key advisers.

“The expectations of a two-pronged stimulus approach -- both fiscal and monetary -- have definitely put the yen under pressure,” said Peter Dragicevich, a foreign-exchange strategist at Commonwealth Bank of Australia in London.

The pound strengthened 1.3 percent to $1.3315. The BOE unexpectedly kept its key interest rate unchanged. While signaling more stimulus will come in August to aid the post-Brexit economy, they stopped short of detailing what those might be.

The rand climbed 1.7 percent against the dollar and the ruble gained 1.5 percent. Brazil's real and South Korea's won strengthened as well.

Commodities

West Texas Intermediate crude oil rose 1.3 percent to $45.35 a barrel, after tumbling 4.4 percent on Wednesday as U.S. data showed crude stockpiles fell an eighth week, the longest declining streak since June 2015.

The LME Index of six base metals rose to the highest since Oct. 15 as nickel climbed on potential supply disruptions and copper advanced on speculation policy makers' efforts to spur economic growth will boost demand for metals.

Gold in the spot market declined 0.8 percent to $1,331.88 an ounce, after gaining 0.7 percent in the last session.

Bonds

Sovereign debt fell in the U.S., the U.K., Japan and Germany. The yield on U.S. Treasuries due in a decade rose six basis points to 1.54 percent, while that on Japanese debt increased by two basis points to minus 0.27 percent. Yields climbed five basis points in Germany to minus 0.04 percent.

U.K. bonds fell, sending the rate on 10-year gilts up five basis points to 0.79 percent, while two-year yields rose three basis points to 0.13 percent.

Source: Bloomberg