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Stocks advance as Fed speculation weakens dollar; crude climbs

The New York Stock Exchange building is shown Tuesday, Oct. 11, 2016, in New York. (Frank Franklin II / Associated Press)
The New York Stock Exchange building is shown Tuesday, Oct. 11, 2016, in New York. (Frank Franklin II / Associated Press)
By Rita Nazareth, Lananh Nguyen and Lukanyo Mnyanda Bloomberg

Stocks rallied around the world and the dollar fell on speculation the Federal Reserve will stick with a gradual tightening of monetary policy.

Equities posted their biggest gain in almost four weeks as investors parsed earnings reports. The greenback extended its drop from a seven-month high as data showed consumer prices excluding food and fuel costs rose less than forecast. Oil climbed, closing above $50 a barrel in New York as investors ponder the likelihood of OPEC following through with production cuts agreed on last month.

Traders are betting the Fed will raise interest rates in December and take a slow path on further increases amid mixed economic data. While the cost of living in the U.S. rose at the fastest pace in five months in September, the increase in prices excluding volatile food and fuel costs missed estimates. An uneven picture of the world’s biggest economy mirrors the approach the central bank seems to be taking, after Chair Janet Yellen laid out arguments last week for remaining accommodative without taking a 2016 hike off the table.

“With underlying inflation underwhelming, it’s catalyzed more profit-taking on the buck’s recent outperformance,” said Joe Manimbo, an analyst with Western Union Business Solutions, a unit of Western Union Co., in Washington. Remarks by Yellen underscore the likelihood of a “lethargic pace” of rate increases, he said.

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The MSCI gauge of global equities rose 0.9 percent at 4 p.m. in New York, extending this year’s advance to 3.5 percent.

The S&P 500 Index climbed 0.6 percent to 2,139.60, rising from a one-month low. Goldman Sachs Group Inc. advanced after posting a 47 percent increase in earnings. Netflix Inc. surged after reporting a jump in subscribers that alleviated concern about slowing growth. International Business Machines Corp. slipped after saying that profit margins shrank for the fourth quarter in a row.

“We’ve been selling off for the better part of a week at this point, and earnings have been good enough to get us into this bounce,” said Michael Antonelli, an institutional equity sales trader and managing director at Robert W. Baird & Co. in Milwaukee.

Lenders in the Stoxx Europe 600 Index rallied ahead of the European Central Bank’s meeting on Thursday. The regional benchmark added 1.5 percent. Glencore Plc and Fresnillo Plc paced an advance in miners.

Benchmark gauges in Hong Kong, India and the Philippines led gains in emerging-market equities.

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The Bloomberg Dollar Spot Index, which measures the U.S. currency against 10 major counterparts, fell 0.2 percent. It touched the highest level since March last week.

The dollar has fallen this year on speculation that mixed economic data would limit the Fed’s ability to tighten monetary policy. The losses had narrowed in recent weeks on wagers that the central bank is getting closer to a hike, prompting hedge funds and money managers to boost net bullish bets. Futures pricing indicates a gradual pace of rate increases, with traders seeing a 64 percent probability of a move by December.

“The market has clearly come to a stronger view that they’ll raise rates in December, but that has very little influence on where rates are perceived to go in the longer term,” said Adam Cole, head of global foreign-exchange strategy at Royal Bank of Canada in London.

The pound advanced versus the dollar as signs of quickening inflation suggested the Bank of England may have limited scope to ease monetary policy further.

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Oil advanced 0.7 percent. Speculators have bolstered bullish bets since the OPEC accord was reached on Sept. 28 in Algiers. Fractures have emerged within the group that threaten to derail a final agreement on quotas, expected in Vienna on Nov. 30. U.S. crude inventories probably rose last week, according to analysts surveyed by Bloomberg.

“We’re waiting for new headlines,” said Rob Haworth, a senior investment strategist in Seattle at U.S. Bank Wealth Management, which oversees $133 billion of assets. “Maybe API, but for sure the EIA data will be market moving. We’re looking for a rise in production and it will be interesting to see if production gains.”

West Texas Intermediate for November delivery advanced 35 cents to settle at $50.29 a barrel on the New York Mercantile Exchange. Total volume traded was 23 percent below the 100-day average at 2:38 p.m.

Brent for December settlement climbed 16 cents to $51.68 a barrel on the London-based ICE Futures Europe exchange. The global benchmark crude closed at a $1.06 premium to December WTI.

Industrial metals rebounded from the lowest in almost four weeks as a surge in new credit in China pointed to a stabilizing economy in the world’s biggest commodities buyer.

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Treasuries gained, led by five-year securities, after a core inflation gauge rose less than expected in September, pushing traders to pare wagers on a Fed interest-rate increase this year. Yields on five-year notes fell to the lowest in two weeks. A gauge of the yield curve steepened, with the gap between five- and 30-year yields near the widest since June, as shorter maturities outperformed longer-dated debt.

The U.S. five-year bond yield declined about two basis points, or 0.02 percentage point, to 1.23 percent as of 2:55 p.m. in New York, the lowest intraday level since Oct. 5, according to Bloomberg Bond Trader data. The price of the 1.125 percent security due in September 2021 was 99 15/32.

The benchmark 10-year note yield fell two basis points to 1.74 percent, while the gap between five- and 30-year debt climbed to about 1.28 percentage points.

The 10-year break-even rate, a gauge of inflation expectations that measures the difference between yields on 10-year notes and similar-maturity Treasury Inflation Protected Securities, was about 1.68 percentage points.

“CPI came out a little lower than expected on the core, which forces the curve to steepen,” said Charles Comiskey, head of Treasury trading in New York at Bank of Nova Scotia, one of 23 primary dealers that trade with the central bank. “The lower inflation report pushed the Fed back a little bit.”

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