Global stocks climb, euro tumbles as ECB signals stimulus boost

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(Bloomberg) -- The European Central Bank’s signal that it’s ready to add stimulus this year jolted U.S. stocks back into their pre-correction trading range, torpedoed the euro and sparked demand for risk assets around the world.

The Standard & Poor’s 500 Index surged 1.2 percent, briefly bringing its gain from an August low past 10 percent and returning it to the range that bound trading from March into August. European stocks surged to a two-month high and bonds in the region jumped after ECB President Mario Draghi said the bank will consider adding to its bond-buying program this year. The euro tumbled to a two-month low.

“It’s definitely a risk-on day,” Mark Kepner, an equity trader at Themis Trading LLC in Chatham, New Jersey, said by phone. “It’s speculation around quantitative easing, thinking more stimulus in Europe could mean more growth and while it’s not driving the market there may be speculation that it’s something our Federal Reserve would do.”

The ECB became the latest central bank to signal a willingness to loosen policy if slowing international growth and tepid inflation continue. The move sparked purchases of risk assets from oil to emerging-market stocks on speculation the European economy will rebound. U.S. equities resumed their rally from a third-quarter swoon, as results from McDonald’s Corp. and EBay Inc. beat projections and data indicated sales of existing homes rose to the second-highest level since 2007.

Draghi said officials will reexamine the scope of their quantitative-easing plan in December. The bond purchases, originally due to end next September, will continue until the ECB sees a sustained increase in the inflation outlook, he told reporters. Policy makers left key interest rates unchanged.

Stocks

The Standard & Poor’s 500 Index jumped 1.7 percent to 2,052.57 at 4 p.m. in New York, bringing its gain since an August trough to 9.9 percent. The gauge rose back into a range that stretched from about 2,040 to its all-time high of 2,130.82. Today’s gain trimmed the index’s loss in 2015 to 0.3 percent.

McDonald’s jumped the most in seven years to extend a record, and EBay headed for its biggest gain since 2005. Dow Chemical Co. jumped 5.1 percent after its earnings topped forecasts, and Texas Instruments added 12 percent after better- than-estimated results. American Express Co. lost 5.2 percent after results missed analysts’ forecasts.

Valeant Pharmaceuticals International Inc. sank 7.4 percent, adding to its 19 percent rout yesterday. The company is facing more questions from investors over a business model that includes close ties to pharmacies that distribute its drugs, a rare arrangement in the industry.

As the ECB considers raising stimulus, the Federal Reserve is scrutinizing economic data ahead of its policy meeting next week. The housing report today provided the latest sign that the recovery in residential real estate will support growth. Data also showed jobless claims last week hovered near the lowest level in four decades in a fresh indication the labor market continues to firm.

In Europe, Draghi’s comments gave stock investors just what they wanted. The Stoxx Europe 600 Index surged 2 percent for the highest close since Aug. 20. Concern over slowing global growth took the gauge just 2 percentage points away from a bear market last month. Since then, it’s rebounded 9.1 percent.

Draghi “opened the door widely for an extension of QE,” said Guillermo Hernandez Sampere, who helps manage about 150 million euros ($170 million) as head of trading at MPPM EK in Eppstein, Germany. “It was what the market wanted to hear. It will be a positive outcome for the equity market.”

Currencies

The euro fell against all 16 of its major counterparts, as stimulus tends to weaken a currency by expanding the monetary base. The shared currency slid 2 percent to $1.1108 and lost 1.3 percent to 134.20 yen. Commodity-exporting nations also got a currency boost from the ECB, with the New Zealand dollar, South African rand and Mexican peso all surging more than 2 percent against the euro.

The Bloomberg Dollar Spot Index, a gauge of the currency against 10 major peers, rose 0.7 percent, the most since July. The gauge capped a sixth day of gains for the longest run since March.

Bonds

Draghi’s comments sent German two-year notes higher, pushing the yield to a record low of minus 0.32 percent. Italian 10-year bonds also climbed, pushing the yield difference, or spread, over similar-maturity German debt below 100 basis points for the first time since March. Yields on U.S. Treasuries due in a decade fell one basis point to 2.02 percent.

U.S. two-year note yields fell after the Treasury Department postponed its Oct. 27 auction of the securities as lawmakers work toward a compromise to lift or suspend the ceiling on government borrowing. The yield fell three basis points, or 0.03 percentage point, to 0.59 percent.

Ten-year Treasuries are the most expensive relative to other maturities in more than two years. The so-called butterfly spread measuring differences in yield between the 10-year note and the five- and 30-year securities has been around minus 17 basis points this week, the lowest level on a closing basis since May 2013.

Emerging Markets

The MSCI Emerging Markets Index climbed 0.1 percent after two days of losses. South Korean shares dropped 1 percent. The Shanghai Composite Index rose 1.5 percent, rebounding from its steepest loss in a month. Turkish shares gained 0.4 percent.

Brazil’s stocks led gains in the Americas after the central bank signaled it won’t raise interest rates any time soon, bolstering prospects for companies that get most of their revenue from Latin America’s largest economy.

Commodities

Oil roes for the second time in nine sessions after falling to a three-week low. Gasoline gained more than crude, widening refinery profits. West Texas Intermediate gained 18 cents to settle at $45.38 a barrel and Brent added 23 cents to end at $48.08. Data showed U.S. crude stockpiles expanded more than twice as much as forecast.

Copper climbed for the first time in five days as disruptions from a strike in Peru to slowing refined output added to speculation supply won’t be as large as previously expected. Futures rose 1.1 percent to settle at $5,232.50 a metric ton in London. Zinc, nickel and lead also gained in London, while tin fell. Aluminum dropped to the lowest since 2009.

Gold traded little changed after reaching a one-week low as investors awaited signals on whether the Fed will boost interest rates this year. Futures for December delivery gained 0.1 percent to $1,167.80 an ounce in New York.

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