Stocks Drop With Commodities on Fed Concern; Yen Climbs

Photographer: Ralph Orlowski/Bloomberg

A trader monitors financial data on his computer screens at the Frankfurt Stock Exchange in Frankfurt. Close

A trader monitors financial data on his computer screens at the Frankfurt Stock Exchange in Frankfurt.

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Photographer: Ralph Orlowski/Bloomberg

A trader monitors financial data on his computer screens at the Frankfurt Stock Exchange in Frankfurt.

May 29 (Bloomberg) -- Stocks fell, trimming a 12th consecutive monthly gain in Europe, amid concern the Federal Reserve will reduce debt purchases as the economy recovers. Commodities slid as the International Monetary Fund cut China’s growth forecast, while the yen strengthened and dollar weakened.

The Standard & Poor’s 500 Index slipped 0.7 percent to 1,648.36 at 4 p.m. in New York and the Stoxx Europe 600 Index lost 1.9 percent. Ten-year Treasury yields retreated from the highest level in more than a year, while German bunds dropped as bonds worldwide headed for their steepest monthly slide since 2004. The yen gained 1.3 percent to 101.10 per dollar. The S&P GSCI gauge of 24 raw materials slipped 1.1 percent, the most in almost a month, as natural gas, copper and oil paced losses.

The U.S. sold $35 billion of five-year notes today after a two-year auction yesterday drew the fewest bids since February 2011. Yesterday’s was the first offering since Fed Chairman Ben S. Bernanke said last week the central bank could reduce the pace of its purchases if there is a sustained improvement in growth. The world’s biggest economy grew at an annualized 2.5 percent pace in the first quarter, unchanged from a preliminary reading last month, economists said before Commerce Department data tomorrow.

“We’ll have days when people are focusing on the positive economic story and days when people are focusing more on the issue that the Fed has in terms of slowing down their asset purchases and eventually moving interest rates,” Dan Curtin, the Boston-based global investment specialist at J.P. Morgan Private Bank, which oversees about $900 billion, said by telephone.

‘Remains Appropriate’

Fed Bank of Boston President Eric Rosengren said the central bank should press on with record stimulus to speed economic growth, reduce 7.5 percent unemployment and boost inflation running below 2 percent.

“While we have seen some improvement in labor market conditions, significant accommodation remains appropriate at this time,” Rosengren said today in remarks prepared for a speech in Minneapolis. “Core inflation remains at the very low end of recent experience, and the unemployment rate is close to the cyclical peaks of the past two recessions.”

U.S. stocks erased yesterday’s 0.6 percent advance in the S&P 500. The index has risen 3.2 percent so far in May and is poised for a seventh straight monthly gain, its longest rally since 2009.

Market Leaders

Nine of the 10 main groups in the S&P 500 declined today, as utility, telephone and consumer-staples companies dropped at least 1.5 percent to help lead losses. The three groups pay dividends equal to at least 2.8 percent of their prices, the highest among the 10 industries, and have led the S&P 500’s 1.2 percent retreat since its record on May 21 amid concern rising Treasury yields will compete with their payouts.

Verizon Communications Inc. and Procter & Gamble Co. lost more than 2.4 percent to pace losses among the biggest U.S. companies. Lennar Corp. and PulteGroup Inc. fell at least 3.2 percent as investors sold shares of homebuilders.

Smithfield Foods Inc. (SFD) jumped 28 percent, the most in four years, after Shuanghui International Holdings Ltd. agreed to acquire the pork processor for $4.72 billion. Shuanghui will pay $34 a share for Smithfield, a 31 percent premium over yesterday’s closing share price.

Mortgages, Treasuries

Mortgage applications in the U.S. dropped last week for a third consecutive time as the highest borrowing costs in a year triggered a slump in refinancing. The Mortgage Bankers Association’s index fell 8.8 percent in the period ended May 24 from the prior week. The group’s refinancing measure slumped 12.3 percent to the lowest level of the year, while its purchasing measure climbed 2.6 percent.

The average rate on a 30-year fixed mortgage jumped to 3.90 percent, the highest level since May 2012, from 3.78 percent in the prior week. The 0.31 percentage-point surge over the past three weeks has been the biggest over a similar period since early February 2011.

The yield on 10-year Treasury notes fell five basis points to 2.12 percent after reaching 2.23 percent, the highest since April 5, 2012. The yield rose 16 basis points yesterday as a report showed U.S. consumer confidence in May reached the strongest in more than five years. Securities in the Bank of America Merrill Lynch Global Broad Market Index have fallen 1.3 percent in May, poised for the steepest loss since April 2004. Treasuries have dropped 1.9 percent this month, the indexes show.

‘Reevaluate’

U.S. government securities yesterday suffered their biggest one-day decline since October 2011. A continuation of the surge in 10-year note yields risks breaking U.S. government debt out of the low interest rate environment that has held since 2008, according to Credit Suisse Group AG.

If “you get above about 2.4 percent, which was the 2012 yield highs, you’d have to completely reevaluate any kind of ‘we’re staying in a low-yield range for a long time’ ” scenario, Ira Jersey, an interest-rate strategist in New York at Credit Suisse, said in a radio interview on “Bloomberg Surveillance” with Tom Keene and Michael McKee. “We are not quite there yet, we are about 25 basis point away from that kind of level that I’d be thinking we are going to have a trend higher in yields somewhat similar to what happened, say early-to-mid 2009.”

Almost 13 shares dropped for every one that gained in the Stoxx 600 while volume was 7 percent less than the 30-day average. The decline pared this month’s advance to 2 percent as the gauge headed for the longest monthly winning streak since 1997.

European Movers

Evraz Plc slid 2.7 percent after Stoxx Ltd. said it will remove the company from the Stoxx 600 before the start of trading on June 24. Hennes & Mauritz AB dropped 2.5 percent as Goldman Sachs Group Inc. recommended investors sell the shares.

The MSCI Emerging Markets Index snapped a three-day advance, falling 1.1 percent. The Hang Seng China Enterprises Index (HSCEI) of mainland companies listed in Hong Kong sank 1.6 percent. China’s expansion will be 7.75 percent this year and next, David Lipton, first deputy managing director of the IMF, said in Beijing today. In April, the IMF predicted growth of 8 percent this year and 8.2 percent in 2014.

The Organization for Economic Cooperation and Development forecast global economic growth will accelerate in 2014 with both the U.S. and Japan continuing to outpace the euro area.

‘Moving Forward’

“The global economy is moving forward and it is doing so at multiple speeds,” OECD Chief Economist Pier Carlo Padoan said today in the Paris-based organization’s semi-annual Economic Outlook. Differing monetary and fiscal choices across the major developed economies are driving regional divergence with “each path carrying its own mix of risks,” he said.

Brazil’s Ibovespa sank 2.2 percent, the most in six weeks, and Russia’s Micex Index slipped 2.6 percent to a one-month low as commodities fell. Turkey’s benchmark gauge dropped 3.1 percent, the most since January. The Philippine Stock Exchange Index jumped 1.6 percent after Finance Secretary Cesar Purisima said the government will ensure economic growth stays high.

West Texas Intermediate oil slipped 2 percent to $93.13 a barrel, the lowest settlement since May 1, and copper retreated 0.5 percent in New York. China is the biggest buyer of industrial metals and energy. The declines trimmed this month’s gain in the S&P GSCI (SPGSCI) to 0.8 percent.

OPEC Production

Saudi Arabia, the world’s largest crude exporter, is content with current conditions in the oil market, Ali al-Naimi, the kingdom’s petroleum minister, said in Vienna yesterday. The Organization of Petroleum Exporting Countries will keep its production quota unchanged on May 31, according to two OPEC delegates who asked not to be identified because the decision isn’t final.

Germany’s 10-year bond yield rose four basis points to 1.53 percent, the highest level since February. German unemployment rose more than four times as much as economists estimated in May as the euro area’s sovereign debt crisis and a long winter took their toll on Europe’s largest economy. The number of people out of work climbed a seasonally adjusted 21,000 to 2.96 million, a fourth straight monthly gain. Economists predicted an increase of 5,000, according to the median of 35 estimates in a survey. The adjusted jobless rate held at 6.9 percent, just above a two-decade low of 6.8 percent.

The cost of insuring European corporate bonds rose for the first time in three days, with the Markit iTraxx Europe Index of credit-default swaps linked to 125 investment-grade companies increasing 5 basis points to 99.6 basis points.

The yen appreciated 0.6 percent to 130.82 per euro. Europe’s 17-nation shared currency rose 0.6 percent to $1.2937. The Swiss franc gained against all 16 of its major peers, advancing 0.9 percent versus the euro.

The krona strengthened against 14 of 16 major peers after data showed the Swedish economy expanded at a faster pace than economists predicted in the first quarter. Sweden’s currency appreciated as much as 0.7 percent against the euro to 8.5832.

To contact the reporters on this story: Stephen Kirkland in London at skirkland@bloomberg.net; Inyoung Hwang in New York at ihwang7@bloomberg.net

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

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