The dollar slid to a record low versus the Swiss franc, stocks fell and the cost of insuring U.S. debt rose to a 17-month high as Democrats and Republicans continued to wrangle over competing plans to cut the deficit.
The dollar depreciated against all 16 major peers at 4 p.m. in New York and earlier dipped below 80 centimes versus the franc. The Standard & Poor’s 500 Index lost 0.4 percent to 1,331.94 and the Stoxx Europe 600 Index closed down 0.4 percent. Credit-default swaps on U.S. debt increased two basis point to 58 basis points. The S&P GSCI Index of 24 commodities climbed 0.6 percent, rebounding from a 0.7 percent drop, as zinc, cotton and copper added at least 1.7 percent.
The Obama administration threatened a presidential veto of House Speaker John Boehner’s two-step plan to raise the U.S. debt ceiling and cut $3 trillion in government spending. Stocks were also pressured after home prices fell the most in 18 months, 3M Co. (MMM) forecast earnings that trailed analyst estimates and United Parcel Service Inc. said the third quarter will be “fairly slow.”
“The biggest tax that Washington is putting on the U.S. economy right now is an uncertainty tax and it’s dragging the market down,” David Kelly, who helps oversee about $445 billion as chief market strategist for JPMorgan Funds in New York, said in a telephone interview. “I would expect some companies to show signs of a lackluster economy, but the overwhelming theme this earnings season is the resilience of corporate earnings in the face of a slow economic rebound.”
‘Theme of the Day’
The Dollar Index, which tracks the U.S. currency against those of six trading partners, declined 0.7 percent to a seven- week low of 73.53 for the fifth decline in the past six days. South Africa’s rand, Sweden’s krona and the Norwegian krone rose more than 1.2 percent to lead gains against the U.S. currency.
“The theme of the day is once again sell the dollar,” said Kathleen Brooks, research director at Forex.com, a unit of Gain Capital Holdings Inc., an online currency-trading company. “Playing this argument out in public, rather than trying to iron out differences behind closed doors, is causing shock waves in the markets. Every public spat is a step back from reaching an agreement by the Aug. 2 deadline.”
Boehner said today that his two-step plan to raise the nation’s debt limit and cut spending can pass both chambers of Congress, and he hopes President Barack Obama would sign it. Obama’s Office of Management and Budget said it “strongly opposes” the measure, which the House is set to vote on tomorrow, and would recommend a veto if it were passed by Congress.
“To think about the fact that we’re a week away from a default, or a pseudo default, is a reflection of the fact that Washington is less than a place of great intellectual wisdom,” Michael Steinhardt, whose hedge funds returned more than 20 percent a year for almost three decades, said on Bloomberg Television’s “InBusiness with Margaret Brennan.”
Treasuries rose, sending the 10-year yield down five basis points to 2.95 percent, following today’s auction of $35 billion in two-year notes. Existing two-year note yields lost two basis points to 0.40 percent.
The securities sold today, which will be issued a day before the limit is reached, drew a yield of 0.417 percent, compared with the average forecast of 0.414 percent in a Bloomberg News survey of seven of the Federal Reserve’s primary dealers. The bid-to-cover ratio, which gauges demand by comparing total bids with amount of securities offered, was 3.14, compared with 3.08 last month and an average of 3.39 at the past 10 sales.
U.S. Default Swaps
At 58 basis points, credit-default swaps to protect U.S. debt are the most-expensive since Feb. 9, 2010. Still, they are cheaper than swaps on 54 of 58 countries tracked by data provider CMA. Only swaps on Finland, the Netherlands, Norway and Sweden cost less, according to CMA data. Swaps on Greece are at 1,652 basis points and Ireland are at 874.
The S&P 500 extended losses after yesterday slumping 0.6 percent. All 12 stocks in a gauge of homebuilders declined after home prices in 20 U.S. cities dropped in the year ended in May by the most in 18 months, adding to evidence the housing market is struggling. The S&P/Case-Shiller index of property values in 20 cities fell 4.5 percent from May 2010. Other data showed sales of new homes unexpectedly declined for a second month in June.
Stocks fell even after confidence among American consumers unexpectedly rose in July from an eight-month low, led by a rebound in the outlook for jobs over the next six months. The Conference Board’s index climbed to 59.5 from a revised 57.6 reading in June that was lower than previously estimated.
3M slid 5.4 percent after projecting full-year earnings that trailed analysts’ estimates as lower demand for LCD televisions curbed sales in its display and graphics business, the company’s third-biggest unit. United Parcel Service Inc. (UPS) retreated 3.3 percent as the shipping company said it expects a continued “extremely sluggish” U.S. business environment.
Gains in technology companies helped limit losses in stocks. Broadcom Corp., the supplier of communications chips for Apple Inc.’s mobile devices, surged 9.4 percent after forecasting sales that topped estimates. Lexmark International Inc. surged 18 percent, the most in almost 11 years, after the maker of laser and inkjet printers posted second-quarter earnings that topped estimates.
The MSCI Emerging Markets Index climbed 0.7 percent, led by a rally in technology companies, after Baidu Inc., China’s biggest Internet company by market value, forecast third-quarter sales that topped estimates as customers spent more on search- engine advertising. India’s Bombay Stock Exchange Sensitive Index dropped 1.9 percent, the most in a month on a closing basis, as the central bank raised its benchmark interest rate more than economists estimated.
The New Zealand dollar climbed as much as 1.2 percent to a record versus the greenback as investors sought alternatives to the U.S. currency. China’s yuan advanced as much as 0.1 percent against the dollar to its strongest level in 17 years after the central bank placed the currency’s reference rate at a record high.
Copper advanced 1.6 percent, the most in more than two weeks, to $4.478 a pound as a strike at BHP Billiton Ltd.’s Escondida copper mine in Chile, the world’s biggest, entered a fifth day. Gold futures for December delivery rose $4.90, or 0.3 percent, to settle at $1,619.30 on the Comex in New York. The August contract reached a record $1,624.30 yesterday.
Corn for December delivery rose 1.8 percent on the Chicago Board of Trade and soybean futures climbed 1.2 percent as dry weather in the Midwest worsened crop conditions in the U.S.
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