Stocks, Pound rally as Brexit concerns softens

Global stocks rallied for a second day and the dollar weakened amid speculation policy makers will move to prevent the U.K.’s European secession from hampering global growth. Crude oil gained as American stockpiles fell.

The MSCI All-Country World Index had its biggest two-day gain since August as central banks around the world signaled a readiness to act. The S&P 500 Index erased a loss for the year, with a Goldman Sachs Group Inc. index of the most-shorted shares surging the most since 2011. Britain’s FTSE 100 Index erased its post-Brexit losses with a 6.3 percent surge over two days. Emerging-market shares climbed as the dollar fell on odds that the Federal Reserve won’t raise rates this year. Oil topped $49 a barrel.

With Britain in limbo as EU leaders gathered in Brussels to discuss the nation’s withdrawal, a majority of economists surveyed by Bloomberg predict that the Bank of England will add more stimulus to soften Brexit’s blow, while signs that the pain will spread quickly have yet to emerge. A weakened pound, rising commodity prices and central-bank reassurances helped large-cap shares rebound in the U.K., while American equities rallied on speculation U.S. companies have limited exposure to Britain.

“I don’t think it’s shocking that cooler heads are prevailing temporarily,” said Daniel Kern, chief investment officer of Boston-based TFC Financial Management, which oversees $850 million. “The markets are discounting that there’s very little chance of the Fed raising rates this year. We’re definitely in the speculation phase of this process, and it’s going to be a while before there’s any real economic data to react to. It’s somewhat fragile as things are so fluid as new information comes in.”

EU leaders have said that there can be no turning back for the U.K. and warned Prime Minister David Cameron that a delay in activating the EU exit mechanism will prevent the start of negotiations over any future relationship. The ECB has the tools to respond to the fallout from the U.K’s vote to leave the European Union, Vice President Vitor Constancio said. South Korea announced a fiscal stimulus package and Bank of Japan chief Haruhiko Kuroda said more funds can be injected into the market should they be needed.

The MSCI All-Country World Index rose 2.1 percent at 2:58 p.m. in New York, pushing its two-day gain to 3.9 per cent. The S&P 500 climbed 1.7 per cent after jumping 1.8 per cent in the last session, its best performance in almost four months. The U.S. equity benchmark now stands 0.5 per cent higher in the second quarter.

Energy shares were on pace for their best two days since January as crude gained, with Chevron Corp. climbing 2.6 per cent. Goldman’s basket of the most shorted shares in the Russell 3000 Index was on the way to its biggest surge since 2009, while the Dow Jones Industrial Average stretched its rebound to 500 points since Monday’s close.

The Stoxx Europe 600 Index climbed 3.1 per cent. The gauge has recovered 4.7 per cent after tumbling 11 per cent over two days. It is still heading for a second consecutive quarterly decline.

The MSCI Asia Pacific Index climbed 1.9 per cent as benchmarks advanced across the region. The MSCI Emerging Markets Index climbed 2.2 per cent, extending Tuesday’s advance. It is still heading for quarterly losses, for the first decline since the period ended in September.

The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, slid 0.5 per cent following a loss of the same amount in the last session, amid speculation about the path of Fed interest rates.

Sterling advanced for a second day against the dollar as investors await Britain’s plan for its extrication from the 28-nations bloc.
“ Markets have calmed down somewhat,” said Thu Lan Nguyen, a foreign-exchange strategist at Commerzbank AG in Frankfurt. “We may see some short term continuation of the recovery in the pound if there is an increased chance of a new prime minister who can secure the access of the U.K. to the single market. But uncertainty is still high and market participants are jittery.”

The yen rose 0.1 per cent following a 0.7 per cent decline on Tuesday. Nomura Holdings Inc. became the latest brokerage to raise its year-end forecast for the currency and now expects a 17 per cent increase after the U.K.’s decision to leave the EU spurred a rush for it as a haven.
The MSCI Emerging Markets Currency Index added one per cent. The Colombian peso, South African rand and Brazilian real led the advance.

The Bloomberg Commodity Index, which measures returns on raw materials, extended Tuesday’s 1.9 per cent rally with a 1.1 per cent advance.
Gold recovered most of the previous session’s losses, adding 0.6 percent to $1,326.20 an ounce on speculation that the Fed’s interest rate policy will boost the precious metal’s allure.

West Texas Intermediate crude climbed 3.6 percent to $49.54 a barrel, building on last session’s 3.3 per cent jump. Crude supplies declined 4.05 million barrels last week, the Energy Information Administration said. Analysts surveyed by Bloomberg had forecast the EIA would report a 2.5 million barrel decline.

The yield on 10-year Treasuries was little changed at 1.46 per cent. U.S. government debt has returned about 5.5 percent so far this year, poised for the biggest back-to-back quarterly advance since 2011, a Bloomberg index shows. JPMorgan Chase & Co., Standard Chartered Plc, TD Securities Ltd. and Standard Bank Group Ltd. — the four firms that have updated their Treasury forecasts since the U.K.’s referendum — all see 10-year yields rising in the coming 12 months.

Spain’s 10-year bond yield fell six basis points to 1.25 per cent, after sliding to as low as 1.23 per cent, the least since April 13, 2015. The yield on Portuguese debt dropped six basis points, while for Italy it was down five.
Yields on Japan’s five- and 10-year bonds sank to fresh lows of minus 0.32 per cent and minus 0.24 per cent, respectively, while the rate on German notes due in a decade dropped 1 basis point to minus 0.13 per cent.

Europe’s corporate-bond market reopened following a six-day shutdown caused by the Brexit referendum. Molson Coors Brewing Co. was offering eight-year bonds in euros, according to a person familiar with the matter, who asked not to be identified, as they aren’t authorized to reveal the information. The beermaker raised $5.3 billion in a U.S. sale on Tuesday.