S&P 500, dollar rise on U.S. optimism as metals fall on China

Hong Kong

The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong slid 0.7%, extending a 2.1% decline yesterday when reports showed industrial production missed estimates and fixed-asset investment unexpectedly slowed last month.

“The April data suggests that domestic demand remains on the weak side, and by extension has also caused the softening in the service sector,” JPMorgan wrote in the report, cutting its growth estimate for China.

Copper for three-month delivery slid 2.3% to $7,245 a metric ton on the London Metal Exchange, falling for the first time in three days and leading losses in commodities. West Texas Intermediate crude oil slipped 1% to $94.21 a barrel, falling for a fourth straight day in its longest slump of the year, on forecasts that U.S. supplies climbed from an 82-year high.

Money managers are the most bearish on commodities in more than four years as a majority expected a weaker Chinese economy for the first time in 14 months, a Bank of America Corp. survey showed.

‘Hard Landing’

A net 29% of the fund managers surveyed were underweight the asset class in May as their positions “collapsed” to the lowest level since December 2008. One in four now consider a “hard landing” in China as the biggest risk to their investments. The bank surveyed professional investors who together oversee $517 billion.

“The drop in commodity prices is providing a bit of a lift to equity markets,” said Jim Russell, a senior equity strategist in Cincinnati at U.S. Bank Wealth Management, which oversees about $110 billion in assets. “We think commodity prices will bump along the bottom for a considerable period of time due to sluggishness in Europe and a downgrade of growth prospects in China.”

Spain Bonds

Spain’s 10-year bond yield was up six basis points at 4.34%. The nation sold one-year bills to yield less than 1% for the first time since April 2010. The rate on Italy’s 10-year note rose four basis points to 4.01%.

The Netherlands sold five-year notes at a record-low yield of 0.611%.

Australia’s dollar fell to an 11-month low as the government’s forecast of slower growth fanned speculation the Reserve Bank will cut borrowing costs to support the economy. The Aussie weakened 0.6% to 98.93 U.S. cents.

Bloomberg News

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