Stocks Fall as China Reduces Growth Target; Yen Gains, Treasuries Retreat
Stocks (MXWD) fell for a second day after China announced the lowest economic growth target since 2004 and European services and manufacturing output was less than earlier estimated. The yen climbed, while Treasuries declined.
The S&P 500 lost 0.4 percent to close at 1,364.33 at 4 p.m. in New York and the Dow Jones Industrial Average slipped 14.76 points to 12,962.81. The yen strengthened against all 16 most- traded peers, while China weakened its currency’s daily fixing by the most since November 2010 and said it may widen its trading band. Oil was little changed, while copper slid 1.1 percent and natural gas fell 5.2 percent. Ten-year Treasury yields rose three basis points to 2.005 percent.
China cut the nation’s economic growth target to 7.5 percent from an 8 percent goal in place since 2005, according to Premier Wen Jiabao’s speech at the National People’s Congress today. European services and manufacturing output shrank in February more than earlier estimated, Markit Economics said, and U.S. factory orders fell for the first time in three months. Greece’s private creditors decide this week whether to sign off on the country’s debt restructuring.
“It’s just not an environment that we feel like sticking our neck out to take on a lot of risk,” Michael Mullaney, who helps manage $9.5 billion at Fiduciary Trust in Boston, said in a telephone interview. “We’ve been scratching our heads a little bit after the big run-up in equities. We just don’t see a strong enough global economic background to support where prices are right now.”
Retreat From High
The S&P 500 (SPX) fell for a second day after last week reaching its highest level since 2008. Equities briefly pared losses after the Institute for Supply Management’s index of non- manufacturing industries rose to 57.3 in February, topping the median economist projection for a decline to 56. Commerce Department data showed orders to U.S. factories decreased in January by 1 percent, less than the median prediction for a 1.5 percent drop.
Alcoa Inc., Caterpillar Inc. and Bank of America Corp. lost at least 2 percent to lead declines in the Dow. Zynga Inc. (ZNGA), the online-game company that sold shares to the public in December, and CF Industries Holdings Inc., North America’s largest maker of nitrogen-based fertilizer , tumbled at least 2.9 percent after the companies were downgraded.
Corporate profits that doubled since 2009 have left the S&P 500 cheaper than at all 34 peaks since 1989, even as options traders push the cost of protecting against losses to the highest in four years relative to the cost of betting on gains.
Companies in the benchmark gauge of U.S. stocks (MXWD) trade for 14 times earnings after advancing 102 percent since March 2009, according to data compiled by Bloomberg that excludes peaks occurring within a month of one another. Valuations are lower than at every 52-week peak since 1989. Traders have pushed the price of contracts that pay should the S&P 500 drop 20 percent to the most since 2007 compared with ones betting on a rally of the same size.
Technology and consumer-discretionary stocks, which have led this year’s rally in the S&P 500 along with financials, may perform worse than other shares as American economic reports struggle to beat rising forecasts, according to Tobias Levkovich, chief U.S. equity strategist at Citigroup Inc.
A drop in Citigroup’s Economic Surprise Index (CESIUSD) for the U.S. is one of several concerns for the market in the short-term, Levkovich said. The index, which measures the extent to which reports beat or miss forecasts, has fallen to 48.2 from 83.70 on Feb. 3. Consumer-discretionary and technology shares show some of the highest correlations to the gauge and “are vulnerable to a pullback,” the report said.
‘Dr. Fed;’ ‘Monetary Morphine’
Two-year Treasury yields increased two basis points to 0.30 percent and 30-year rates added four basis points to 3.15 percent today. Federal Reserve Bank of Dallas President Richard Fisher said he opposes additional Fed purchases of securities and urged Wall Street to get ready to become less dependent on monetary easing.
“I would suggest to you that, if the data continue to improve, however gradually, the markets should begin preparing themselves for the good Dr. Fed to wean them from their dependency rather than administer further dosage,” Fisher said today in the text of a speech in Dallas. Financial markets “have become hooked on the monetary morphine we provided” after the 2008 financial crisis, he said.
For all the concern that the $10 trillion market for Treasuries is dependent on Fed purchases to absorb expanding supply, the amount held by investors outside the U.S. has grown even more. Foreigners increased holdings of U.S. government debt by $1.84 trillion to a record $5 trillion since the Fed began the first round of Treasury purchases in May 2009, taking their stake to 60.5 percent of the securities not held by the central bank, government data show. The Fed added $1.18 trillion during that period, to $1.65 trillion, or 16.8 percent of the total.
The Stoxx Europe 600 Index (SXXP) fell 0.6 percent. Rio Tinto Group led mining shares lower as copper slid. Salzgitter AG sank 5.4 percent amid uncertainty over the steelmaker’s outlook. BP Plc advanced 1.6 percent after reaching a $7.8 billion settlement with businesses and individuals harmed by the Gulf of Mexico oil spill in 2010.
Russia’s Micex Index (MICEX) gained 1.1 percent after Vladimir Putin won a presidential election in an endorsement of his pledge to continue to privatize state companies and undertake political reform.
Among European bond markets, rates on Spanish and Italian 10-year debt increased at least two basis points, while remaining below 5 percent. Germany’s 10-year yield added three basis points to 1.83 percent. The rate on Greece’s 10-year debt fell 56 basis points to 36.54 percent after reaching a record 37 percent on March 2, according to Bloomberg generic yields.
Greece expects bondholders to accept a one-time offer to write off about 100 billion euros ($140 billion) of Greek debt and is ready to force them to participate if necessary, Finance Minister Evangelos Venizelos said.
“This is the best offer,” Venizelos said in a Bloomberg Television interview with Nicole Itano in Athens today. “This is the best offer because this is the only one, the only existing offer.”
The Greek government has set a 75 percent participation rate as a threshold for proceeding with the transaction, in which investors will forgive 53.5 percent of their principal and exchange their remaining holdings for new Greek government bonds and notes from the European Financial Stability Facility.
The private investors that declared their participation in Greece’s debt restructuring hold about 20 percent of the bonds involved in a swap required for an international bailout. The 12 members of the creditors’ steering committee that said today they would join in the exchange have debt with a face value of about 40 billion euros ($53 billion).
The yen climbed 0.3 percent against the euro and advanced 0.5 percent versus the dollar. The euro strengthened 0.2 percent to $1.3224 as it appreciated against 13 of 16 major peers.
The S&P GSCI gauge of commodities was little changed as 18 of 24 materials retreated, overshadowing gains in cotton, corn and heating oil. Cotton jumped the daily maximum allowed of 4 cents a pound, or 4.5 percent, after India halted exports. India is the second-biggest exporter after the U.S.
Speculators increased bets on higher agricultural prices to a five-month high on mounting concern that a South American drought will curb supplies of soybeans, corn and sugar at a time of record global demand. A measure of speculative positions across 11 farm goods jumped 26 percent to 607,721 futures and options in the week ended Feb. 28, U.S. Commodity Futures Trading Commission data show.
China may “appropriately” widen the yuan’s trading band to better reflect market supply and demand, Xinhua News Agency reported, citing People’s Bank of China Governor Zhou Xiaochuan. Zhou said the yuan has gradually met the requirements to become more of a floating currency, Xinhua reported. As China improves its industrial structure and gradually reduces its trade surplus, the yuan is now moving “very close” to a “balanced level,” Xinhua reported in English, citing Zhou.
In today’s trading, the yuan declined to its weakest level in almost a month. The central bank weakened the currency’s daily fixing by 0.22 percent, setting it at 6.3121 per dollar.
The Taiex index retreated 1.4 percent after Taiwanese technology companies reported slumping sales. The BSE India Sensitive Index fell 1.6 percent before the results of state elections tomorrow that may be crucial in determining the future of the ruling Congress Party’s economic agenda.
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