Stocks rebound with U.S. futures, oil as risk appetite returns

(Updated 12:42 p.m.)
Risk appetite made a comeback following the selloff on Monday that erased $2.7 trillion from the value of global equities. Stocks, commodities and emerging-market currencies extended gains after China cut interest rates.

The Standard & Poor’s 500 Index rallied after entering a correction yesterday, with Apple Inc. leading gains among stocks hit the hardest. European shares clawed back most of their biggest decline since the 2008 financial crisis. Russia’s ruble led a rebound in developing-nation currencies as raw-material prices advanced from the lowest level since 1999. The yen fell for the first time in five days and Treasuries retreated.

The recovery signaled the selloff may be overdone. German business confidence unexpectedly increased in August as companies brushed off concerns that China’s slowing economy will drag on global growth. China’s central bank cut its benchmark lending rate for the fifth time since November and lowered the amount of cash banks must set aside. Purchases of new homes in the U.S. rebounded in July, bolstering signs the real-estate market is picking up.

“I’m not surprised to see the market move up, given the magnitude of the selloff we’ve seen the past four days and the moves made by China,” said Michael James, managing director of equity trading at Wedbush Securities Inc. in Los Angeles. “The question is whether these levels will hold, and the only guarantee is another day of volatility.”

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The S&P 500 climbed 2.2 percent at 12:04 p.m. in New York. Nine of the 10 main industries in the index gained. Apple jumped 5.7 percent, the most since January, after sinking 12 percent over the previous five days.

The benchmark index lost 3.9 percent in a day of wild swings Monday, capping a 7 percent two-day retreat, the most since December 2008. The S&P 500 plunged more than 10 percent from its record in May, entering a correction for the first time since 2011. The worsening global selloff saw Chinese shares sink the most since 2007 and stocks in Germany fall into a bear market. Commodities slid to a 16-year low as Brent crude plunged below $45 a barrel for the first time since 2009.

“During the selloff, we weren’t selling,” said Tom Stringfellow, president and chief investment officer of San Antonio-based Frost Investment Advisors LLC, which manages about $11 billion. “Now, lower valuations make some companies in the consumer discretionary, industrials, health-care and technology sectors look attractive again,” he said.

The Stoxx Europe 600 Index jumped 4.2 percent, the most since 2011, as German equities rallied after entering a bear market and the U.K.’s FTSE 100 Index climbed from lowest level since 2012.

A gauge of options prices on U.S. equities dropped 27 percent, after surging as much as 90 percent Monday to touch the highest level since January 2009. The Chicago Board Options Exchange Volatility Index, or VIX, finished yesterday at the highest close since October 2011.

Investment timing

“Fundamentals aren’t as bad as the headlines would suggest,” said David McDonald, Sydney-based chief investment strategist for Australia at Credit Suisse Group AG’s wealth management and private banking unit. “It’s just a case of whether you would want to rush in now or perhaps wait until it settles down a bit more.”

The MSCI Emerging Markets Index climbed 2.5 percent after closing Monday at the lowest since July 2009, with benchmarks from Taiwan to Turkey and South Africa advancing at least 3 percent. The ruble strengthened 2.8 percent and South Africa’s rand climbed 1.4 percent.

Half of the 30 largest equity markets in developing economies have fallen 20 percent or more from their peaks, surpassing the threshold for a bear market. China and Russia have led the pack, tumbling more than 30 percent each. The remainder are either in a correction, or on the brink of one.

Mark Mobius says investors should hold off from buying developing-nation shares as the rebound will be short-lived amid widening price swings.

Holding cash

“We have a little bit to go before we see stabilization, but volatility will remain,” Mobius, chairman of the emerging markets group at Franklin Templeton Investments, said in an interview with Bloomberg Television. “We are sitting on cash.”

The FTSE China A50 stocks-index futures jumped 5.6 percent. Earlier, the Shanghai Composite Index dropped 7.6 percent, falling below 3,000 for the first time in eight months.

The one-year lending rate will drop by 25 basis points to 4.6 percent effective Wednesday, the People’s Bank of China said. The one-year deposit rate will fall by 25 basis points to 1.75 percent.

The Bloomberg Commodity Index rose 0.5 percent. West Texas Intermediate crude gained 2.9 percent to $39.36 a barrel and Brent futures advanced 1.6 percent to $43.39. The oil market is healthier than Monday’s drop to six-year lows suggests, according to banks including Morgan Stanley and Standard Chartered PLC.

Gold fell 1.5 percent to $1,136.10 an ounce, a second day of declines. Copper climbed 1.3 percent in London.

Haven demand

The yen declined against 12 of 16 major counterparts, dropping 1.3 percent to 119.93 per dollar. The U.S. currency climbed 1.8 percent against the euro, paring a loss of 5.4 percent in the previous four days.

The U.S. 10-year note yield rose 10 basis points to 2.10 percent, after dropping 19 basis points in the previous four days. German government 10-year yields climbed 14 basis points to 0.73 percent.

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