U.S. stocks gained while Treasuries trimmed an earlier advance as the House voted to temporarily suspend the the federal debt limit. The yen climbed for a third day after the Bank of Japan deferred new monetary stimulus.
The Standard & Poor’s 500 Index added 0.1% to 1,494.37 at 1:26 p.m., while a rally in International Business Machines Corp. drove the Dow Jones Industrial Average up more than 75 points to above its best closing level since October 2007. Ten-year note yields decreased one basis points to 1.83%. Japan’s currency rose 0.2% to 88.55 per dollar, poised for its first three-day increase since November. Portugal’s 10-year yield slid as the nation prepared to return to the bond market.
The House voted 285-144 to lift the nation’s debt ceiling through mid-May as a Bloomberg poll showed global investors say the state of the American government’s finances is the greatest risk to the world economy. The International Monetary Fund cut its global growth forecasts and now projects a second year of contraction in the euro region as progress in battling Europe’s debt crisis fails to produce economic recovery.
“We are still pretty constrained by the range and the debt-ceiling debate,” said Larry Milstein, managing director in New York of government-debt trading at R.W. Pressprich & Co. “We are clearly closer to the bottom of the range, 1.75% to 2.05% on the 10-year. We may test the lower ends of this range.”
Debt Ceiling
Thirty-year bonds held two days of gains, with the yield little changed at 3.03%, as the Federal Reserve purchased $1.474 billion in longer-term debt. Inflation expectations dropped from the highest in almost three months as the U.S. prepares to sell $15 billion in 10-year inflation-indexed debt tomorrow.
The House voted to suspend the government’s $16.4 trillion borrowing limit until May 19, when the measure would allow the U.S.’s borrowing authority to automatically be increased to accommodate the amount the Treasury borrowed during those three months. Republicans plan to use two other approaching deadlines, the March 1 start of automatic spending cuts and the need to pass a bill to fund the government by the end of March, to extract spending reductions.
The debt ceiling “is a risk that is constantly weighing,” said Bernard Delattre, president of Altimeo Asset Management in Paris. “It can bring volatility to the market in the short term.”
Market Movers
In the stock market, technology shares rose 1.3% as a group for the biggest gain in the S&P 500 as eight of the 10 main industries retreated. IBM surged 5.1% to $206.02, the biggest jump since July 2011, after the world’s biggest computer-services provider forecast profit that exceeded analyst estimates. The gain in the IBM, which accounts for almost 12% of the price-weighted Dow, added more than 76 points to the 30-stock average, leaving it up 68.89 points at 13,781.10 even as 17 stocks in the measure retreated.
Google Inc. rose 6.4%, the most in more than a year, after the profit topped analysts’ estimates as advertisers boosted spending to reach consumers during the holidays.
Apple Inc. climbed 1.4% before the largest company by market value reports results after the close of U.S. trading today, with analysts forecasting the first drop in profit in a decade. Fiscal first-quarter net income slipped 2% to $12.8 billion, or $13.48 a share, according to analysts’ estimates compiled by Bloomberg. In all except one quarter since 2003, profit has jumped more than 10%. Analysts project sales will rise 18% to $54.8 billion, the slowest growth rate since 2009.
Earnings Season
Per-share earnings have exceeded analysts’ projections at about 76% of the 101 companies in the S&P 500 that have released results so far, data compiled by Bloomberg show. Profits at companies in the index are forecast to exceed $1 trillion this year, according to more than 11,000 analyst estimates compiled by Bloomberg. Earnings have grown 20% for the group amid a 4.5% increase in sales. More than 30 companies in the S&P 500 are reporting today.
Among European stocks, TUI AG and TUI Travel Plc fell more than 4.8% as the former retreated from a plan to combine with the latter, a week after the two travel companies said they were in preliminary merger talks.
Novartis AG, Europe’s biggest drugmaker, climbed 4.1% after reporting earnings that beat projections and saying Chairman Daniel Vasella will step down. Unilever gained 2.4% as the world’s second-largest consumer-goods maker reported faster-than-estimated revenue growth.
IMF Forecasts
The world economy will expand 3.5% this year, less than the 3.6% forecast in October, the Washington-based IMF said today in an update of its World Economic Outlook report. While the fund projects growth this year increasing from last year’s 3.2% pace, it expects the 17-country euro area to shrink 0.2% in 2013, instead of growing 0.2% as forecast in October.
“Is Europe on the mend? I think the answer is yes and no,” IMF Chief Economist Olivier Blanchard said in a video released with the report. “Something has to happen to start growth.”
The yen strengthened against all 16 major counterparts, gaining 0.2% per euro. Europe’s shared currency lost 0.1% to $1.3315.
‘Upward Correction’
The yen will weaken against the U.S. currency by the end of the year, as the BOJ’s decision to hold off on fresh stimulus puts pressure on the government to revive growth through fiscal measures, according to a Bloomberg survey of strategists.
“The yen currently is in an upward correction phase after it weakened rapidly in the past two months,” said Noriaki Murao, managing director of the marketing group at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “The market was somewhat disappointed in that no deadline has been set for the inflation target and that the open-ended asset purchases don’t start until 2014.”
Japan’s top currency official, Takehiko Nakao, said the central bank isn’t engaged in a competitive devaluation of the yen, pushing back against international criticism of the nation’s monetary policy.
“The BOJ’s monetary policy, decided yesterday, is aimed at ending persistent deflation, so criticism that it’s a form of competitive devaluation is misplaced,” Nakao, the Vice Finance Minister, said in an interview in Tokyo today.
The MSCI Emerging Markets Index fell 0.2%. South Korea’s Kospi Index slipped 0.8% as Goldman Sachs Group Inc. cut its economic growth forecast. India’s Sensex index gained 0.2%, Russia’s Micex Index slipped 0.2%. The Shanghai Composite Index added 0.3% before a manufacturing report tomorrow.
