Treasuries Rise, Oil Gains as Stocks End Little Changed

Photographer: Scott Eells/Bloomberg

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Photographer: Scott Eells/Bloomberg

Traders work at the New York Stock Exchange in New York.

Treasuries gained for a fourth straight day amid concern about the U.S. debt ceiling and a reduction in the World Bank’s growth forecasts. Oil rallied following an unexpected drop in inventories, while the Standard & Poor’s 500 Index (SPX) closed little changed at a five-year high.

Ten-year Treasury yields lost two basis points to 1.82 percent, the lowest closing level of the year. Oil jumped 1 percent to $94.24 a barrel, its highest price since September. The S&P 500 rose less than 0.1 percent to 1,472.63, erasing an early drop as Apple Inc. rebounded 4.2 percent from an 11-month low. The Nikkei 225 Stock Average (NKY) sank 2.6 percent while the yen rallied for a second day. A gauge of the Group of Seven nations’ currency volatility reached the highest since September as policy makers stepped up warnings on swings in exchange rates.

The World Bank late yesterday cut its 2013 global growth forecast as austerity measures, high unemployment and low business confidence weighed on economies in developed nations. With as little as a month until the U.S. runs out of money to pay its bills, President Barack Obama and Republicans in Congress remain at odds on raising the debt ceiling. Many Republicans say a boost in borrowing authority must be linked to spending cuts.

“We’re continuing to trade the obvious -- uncertainty and risk,” said Ian Lyngen, a government-bond strategist at CRT Capital Group LLC in Stamford, Connecticut. “We’re in a bit of a holding pattern, consolidation with a slight bullish drift.”

Debt Ceiling

Thirty-year yields also decreased for a fourth day, slipping two basis points to 3.01 percent. U.S. government debt remained higher after a report showed inflation remains at bay, allowing the Federal Reserve to add monetary stimulus without triggering a surge in prices.

The Treasury Department has been using emergency measures since the end of December to prevent a breach of the $16.4 trillion debt limit. The U.S. government makes about 80 million payments each month, including for Social Security, veterans’ benefits, defense contractors, law enforcement and income-tax refunds. Since 1960, Congress has raised or revised the limit 79 times.

The Chicago Board of Options Exchange Volatility Index, the benchmark gauge of U.S. stock-option prices known as the VIX (VIX), slid 1 percent to close at 13.42. The gauge fell as low as 13.2 during the session, the lowest level since June 2007.

Earnings Season

JPMorgan Chase & Co. (JPM) and Goldman Sachs were among 11 companies in the S&P 500 reporting results today. Earnings topped estimates at 74 percent of the 39 companies that posted results so far and 69 percent beat sales projections, according to data compiled by Bloomberg.

JPMorgan, the largest U.S. bank by assets, rallied 1 percent after reporting a 53 percent increase in fourth-quarter earnings, beating analyst estimates. Net interest margin, which measures the profitability of lending, narrowed to 2.4 percent from 2.7 percent a year earlier.

Goldman Sachs, the fifth-biggest U.S. bank by assets, climbed 4.1 percent after quarterly profit almost tripled as gains in the firm’s own investments contributed to the first year of revenue growth since 2009.

Boeing Co. (BA) sank 3.4 percent. All Nippon Airways Co. and Japan Airlines Co., the world’s largest users of Boeing 787 jets, grounded their fleets of Dreamliners in the biggest blow yet to the troubled passenger jet’s image.

Industrial Production

U.S. industrial production climbed for a second month in December as demand picked up for business equipment, showing factories expanded even as lawmakers battled over the federal budget. Output rose 0.3 percent, matching the median forecast in a Bloomberg survey, data from the Federal Reserve showed. The December figure was restrained by the biggest plunge in utility output in almost six years, reflecting warmer weather. Manufacturing, which makes up 75 percent of total production, grew 0.8 percent, more than forecast.

The U.S. economy picked up across much of the country last month, boosted by auto and home sales, even as the outlook for unemployment showed few signs of improvement, the Federal Reserve said.

“Economic activity has expanded since the previous Beige Book report, with all 12 districts characterizing the pace of growth as either modest or moderate,” the central bank said today in its Beige Book business survey, which is based on reports from the Fed’s district banks.

The Stoxx 600 Index (SXXP) closed up less than 0.1 percent, halting a four-day slump that dragged it down from the highest level since February 2011. Anglo American Plc dropped 3.1 percent, leading mining companies lower, as the African National Congress said South Africa’s government should withdraw the firm’s platinum licenses. Tesco Plc slipped 0.7 percent as the U.K.’s largest grocer withdrew beef products after tests found some contained horse DNA.

Yen Rallies

The yen advanced against all 16 of its major peers, extending yesterday’s 0.8 percent gain versus the dollar. It weakened to 89.67 on Jan. 14, the lowest level since June 2010, amid bets Bank of Japan Governor Masaaki Shirakawa and his fellow board members will raise their 1 percent inflation goal, signaling increased stimulus, at a policy meeting on Jan. 21-22. Prime Minister Shinzo Abe has called for the target to be doubled.

Nissan Motor Co. Chief Executive Officer Carlos Ghosn said the yen’s recent declines are insufficient for the company to reconsider plans to scale back on its reliance on Japan.

Euro Slipped

The euro slipped 0.1 percent to $1.3287 after rising above $1.34 against the dollar this week for the first time since February amid signs the region’s debt crisis is subsiding.

Policy makers stepped up their warnings on swings in exchange rates. Russian central bank First Deputy Chairman Alexei Ulyukayev said the world is on the brink of a “currency war.” Luxembourg Prime Minister Jean-Claude Juncker said yesterday the euro is trading at “dangerously high” levels.

Implied volatility for currencies climbed. JPMorgan Chase & Co.’s G7 Volatility Index, based on three-month options on Group of Seven nations’ currencies, reached 8.53 percent, the most since Sept. 6. It fell to 7.06 on Dec. 18, the lowest since August 2007.

German Chancellor Angela Merkel’s government cut its growth forecast for Europe’s biggest economy as austerity policies in cash-strapped euro-region countries and cooling world trade damp exports. Gross domestic product growth will slow to 0.4 percent this year from 0.7 percent in 2012, the Economy Ministry said today. That compares with a previous forecast for 1 percent expansion. Growth will accelerate as the year progresses and average 1.6 percent in 2014, it said.

Oil Inventories

Oil gained as much as 1.2 percent in New York after the Energy Information Administration, the Energy Department’s statistical arm, said stockpiles fell 951,000 barrels last week. They were expected to climb 2.2 million barrels, according to the median of 11 analyst estimates in a Bloomberg survey. Consumption rebounded from the lowest level since March.

Soybeans and cotton also climbed at least 1.5 percent, helping lead the S&P GSCI Index up 0.2 percent even as 14 of its 24 commodities declined.

Lead dropped 1.1 percent and aluminum slipped 0.3 percent, while gold lost 0.2 percent $1,678 an ounce. Platinum, used in car catalysts to reduce harmful exhausts, added 0.4 percent to $1,689.50 an ounce after rising yesterday to the highest since the most since August following a decision by Anglo American Platinum Ltd. to cut production. Platinum was more expensive than gold yesterday for the first time since April.

The MSCI Emerging Markets Index (MXEF) fell for a second day, losing 0.2 percent. The Shanghai Composite Index (SHCOMP) dropped 0.7 percent after Chinese foreign direct investment dropped last month. The yuan retreated from a 19-year high after the central bank cut its reference rate by the most in four months.

India’s Sensex snapped a three-day rally, sliding 0.9 percent, as the central bank chief said there’s no room for stimulus. Russia’s Micex Index added 0.1 percent.

To contact the reporters on this story: Rita Nazareth in New York at rnazareth@bloomberg.net; Susanne Walker in New York at swalker33@bloomberg.net; Daniel Kruger in New York at dkruger1@bloomberg.net

To contact the editor responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net

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