Global stocks, bonds and commodities rose together in February for the first time in seven months, reversing January’s losses in equities and raw materials and burning short sellers who bet on more declines following the Federal Reserve’s decision to begin reducing stimulus efforts.
Commodities climbed the most since July as a drought in Brazil triggered rallies in coffee and sugar. Equity investors focused on the weather, too, chalking up economic data that trailed forecasts to a barrage of U.S. snowstorms, and finding encouragement in improving earnings and takeovers. Leaders of the world’s major economies pledged to maintain accommodative policies and pay more heed to their repercussions, easing concern that turmoil in emerging markets will spread as attention shifted to violence in Ukraine.
“It’s an unusual confluence of events,” Alan Gayle, a senior strategist at RidgeWorth Capital Management, said in a Feb. 27 phone interview from Atlanta. His firm oversees about $50 billion. “Earnings generally exceeded estimates, which is favorable for stocks. Geopolitical risks were higher than expected and inflation pressures were lower than expected and that helped drive yield lower. The market is hoping that a lot of the economic weakness is weather-related.”
Ice Age
The MSCI All-Country World Index of stocks climbed 4.5 percent including dividends in February in its strongest advance since September. The Standard & Poor’s GSCI Total Return Index of metals, fuels and farm products gained 4.1 percent for the month as of Feb. 27. The Bank of America Merrill Lynch Global Broad Market Index returned 0.4 percent, including reinvested interest. The Bloomberg Dollar Spot Index fell 1.1 percent, the most in five months, as the U.S. currency weakened against 15 of 16 major peers.
The MSCI stocks gauge rose 0.1 percent at 7:26 a.m. in New York today. The GSCI index slid 0.2 percent, and the dollar measure dropped 0.3 percent.
Icy roads paralyzed U.S. cities as far south as Atlanta and New York’s Central Park saw snow 18 times since Jan. 1. Tens of thousands of flights were canceled. Chicago was on pace for one of its coldest winters on record.
The winter weather rained havoc on models that economists use to make predictions. Reports on everything from employment growth to retail sales and housing starts trailed forecasts. The Bloomberg ECO U.S. Surprise Index, which measures the degree to which recent data beat or miss economists’ estimates, sank to the lowest level since August 2011.
Cold Relief
“The market is building this expectation that once the cold weather goes away, things will all be better,” Bill Schultz, chief investment officer who oversees about $1.1 billion at McQueen Ball & Associates in Bethlehem, Pennsylvania, said in a phone interview on Feb. 27. “The market has bought the weather as the excuse. That remains to be seen.”
Benchmark stock indexes in all 24 developed nations advanced in February, with gauges in Denmark, Greece, Ireland and Portugal rallying at least 9 percent to lead gains. Chile’s equity gauge jumped 7.3 percent and shares in Dubai rallied 12 percent as the MSCI Emerging Markets Index climbed 2.9 percent for its best advance since October after slumping 9.5 percent in the previous three months.
The Standard & Poor’s 500 Index rebounded from a 3.6 percent drop in January, gaining 4 percent and reaching a record. Gauges of commodity, health-care and consumer-discretionary companies rallied at least 5.7 percent to lead gains in nine of the index’s main industry groups in February. Only telephone shares retreated.
Takeovers
Forest Laboratories Inc. led the S&P 500’s advance, surging 50 percent after Actavis Plc. agreed to buy the drugmaker for $25 billion. The $278 billion in global takeovers announced this month is the most since September, data compiled by Bloomberg show.
Improving profits also fueled gains. Adjusted earnings per share beat analysts’ average estimates at 74 percent of the 484 companies in the S&P 500 that reported results for the latest quarter, according to data compiled by Bloomberg. Profits grew 8.5 percent for the group as sales increased 0.7 percent.
“For investors looking for fundamentals, February was a vindication,” John Manley, who helps oversee about $233 billion as chief equity strategist for Wells Fargo Funds Management in New York, said in a Feb. 26 phone interview. “The basic fundamentals that made the market go up last year are still in place. They may not be as sharply drawn, but they are still there.”
Coffee Rally
Commodities got a boost as arabica coffee, the variety that Starbucks Corp. favors, surged 43 percent, en route to its biggest gain since June 1994. Shares of Starbucks underperformed the broader stock rally, ending 1.5 percent higher in February and down 7.9 percent for the year.
As coffee drinkers braved U.S. snowstorms, plantations that grow the beans a hemisphere away endured the driest January in Brazil since 1954. The news was also good for sugar, which rallied 16 percent for its biggest monthly gain since 2010. Brazil is the biggest grower of both the bean and the sweetener.
All but three of the 24 commodities in the S&P GSCI index advanced in the month.
The gauge of raw materials extended its increase since the end of December to 2.4 percent, rebounding from a 1.2 percent decline last year. It reached 5,003.83 during intraday on Feb. 24, the highest since September. Only heating oil, copper and natural gas decreased in the month.
Gold Gains
Gold, which plunged 28 percent in 2013 for its worst yearly decline since 1981, headed for its first back-to-back monthly advances since August as political turmoil in Ukraine fueled demand for a haven asset. It added 7.4 percent in February, set for the best monthly gain since January 2012, and reached a 17-week high of $1,345.60 an ounce on Feb. 26.
“Gold has probably been one of those commodities that surprised people on the upside,” Jason Lejonvarn, a strategist in London at Hermes Fund Managers Ltd., which oversees $1.6 billion in commodities, said by phone on Feb. 25. “Coffee’s moved an incredible amount over the past month. There’s so much uncertainty around how that drought is going to affect the actual coffee bean.”
West Texas Intermediate crude oil reached a four-month high in February as inventories at Cushing,Oklahoma, the futures’ delivery point, dropped and as cold weather drained supplies of distillate fuels. Prices gained 5 percent this month and climbed to as high as $103.80 a barrel on Feb. 19.
Polar Vortex
Natural gas futures soared to a five-year high in February as waves of arctic cold depleted U.S. stockpiles of the heating fuel to the lowest seasonal levels in 10 years. Prices jumped and sank with shifting weather forecasts and ended the month lower, making it the most volatile month for gas in more than four years.
“The buzz word for the year was ’polar vortex;’ I had never heard that word in my life and that added to the hysteria of the market,” said John Woods, president of JJ Woods Associates and a Nymex floor trader. “You had a big push where everyone wanted to jump in on it.”
Gas for next-month delivery surged as much as 42 percent to $6.493 per million British thermal units on Feb. 24, the highest intraday price since Dec. 2, 2008, from a low of $4.563 on Feb. 10. Prices are poised to end February 8.7 percent lower for the month at $4.511 per million BTU.
European Bonds
Bonds of all 14 euro-area nations tracked by the Bloomberg World Bond Indexes climbed in the month through Feb. 26, as the potential for monetary stimulus from the European Central Bankboosted demand. Greek (BGRE) securities were the month’s best performers, advancing 17 percent, while Spanish (BSPS) bonds climbed 1.1 percent, Italy (BITA) returned 1.3 percent and German debt added 0.2 percent, the indexes show.
The yield on Italy’s 10-year bond slid as low as 3.456 percent on Feb. 27, the least intraday since January 2006. Spain’s tumbled to as low as 3.489 percent, the lowest since February 2006. Greek (GGGB10YR) and Portuguese (GSPT10YR) 10-year rates reached the lowest since 2010, while Ireland’s slid to a more than eight-year low. Germany’s 10-year yield dropped to 1.546 percent on Feb. 27, the least since July.
The pound climbed the most since November against the dollar amid speculation quickening economic growth will make the Bank of England the first major central bank to raise interest rates. The British currency rose 1.5 percent to $1.6686, and touched $1.6823, the strongest since November 2009.
Ukraine Turmoil
Ukraine’s hryvnia sank to a record low beyond 11 per dollar in February. Following violence that killed at least 82 people and led to President Viktor Yanukovych’s ousting last week, Ukraine’s new leaders are grasping for a financial lifeline as Russia weighs the fate of a $15 billion bailout it granted in December.
Bonds of all types rallied 0.6 percent on average as of Feb. 25, according to Bank of America Merrill Lynch’s Global Broad Market Index.
“We’ve had a very significant deterioration in economic data over the past month or so,” Jake Lowery, a money manager at ING U.S. Investment Management, which oversees about $200 billion, said Feb. 25 in a phone interview. “It would be a mistake to completely ignore that data on the basis of this cold-weather effect. That decline in economic impulse should be a natural positive for the U.S. Treasury market.”
To contact the reporters on this story: Michael P. Regan in New York atmregan12@bloomberg.net; Lu Wang in New York at lwang8@bloomberg.net
To contact the editor responsible for this story: Chris Nagi at chrisnagi@bloomberg.net
http://www.bloomberg.com/news/2014-02-28/stocks-commodities-burn-bears-in-frozen-february-rallies.html
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