U.S. stocks and Treasuries retreated as economists said the Federal Reserve may scale back its stimulus efforts as early as September amid an improving economy. The yen fell against most of its counterparts and Turkish shares rebounded from the worst drop in a decade.
The Standard & Poor’s 500 Index lost 0.6 percent to 1,631.38 as of 4 p.m. in New York. The Dollar Index climbed 0.1 percent, while the yen slid against the U.S. currency for the first time in five days. Ten-year Treasury yields rose two basis points to 2.14 percent, trading near 14-month highs. Silver, corn and gold retreated at least 1 percent, while gains in industrial metals sent the S&P GSCI Index of commodities up 0.5 percent. Turkey’s benchmark equity gauge recovered about half of yesterday’s 10.5 percent slump.
While Federal Reserve Chairman Ben S. Bernanke will leave behind an economy poised to record its best growth in almost a decade when he makes his anticipated departure early next year, policy makers continue to debate when to begin reducing monetary stimulus. Goldman Sachs Group Inc. economist Jan Hatzius and Joseph Lavorgna at Deutsche Bank AG predicted the Fed may begin to taper bond purchases beginning in September.
“We definitely think that equities are going to be more volatile with all the talk of Fed tapering,” David Lafferty, a Boston-based investment strategist at Natixis Global Asset Management which manages about $785 billion, said in a phone interview. “In this slow growth environment, you tend to have more hiccups that you would otherwise have if you were in strong growth phase.”
Fed Bank of Kansas City President Esther George, who has dissented against record stimulus at every policy meeting this year, urged the Fed to reduce purchases today in the text of a speech she was to give in Santa Fe, New Mexico. She was unable to speak because of illness.
The Fed is buying $85 billion of Treasury and mortgage bonds each month to put downward pressure on borrowing costs under its quantitative-easing strategy. The stimulus, coupled with four years of earnings growth, has helped push the S&P 500 up about 15 percent this year and 142 percent from its bear-market low in 2009.
Economic reports this week are forecast to show growth in American payrolls. U.S. companies added 165,000 employees last month, ADP Research Institute will say tomorrow, according to a Bloomberg News survey of economists, and government data on June 7 is projected to show similar growth. Investors in Treasuries bet for a seventh straight week that prices of the securities will fall, a JPMorgan Chase & Co. survey showed.
Policy makers will press on with plans to start winding down bond purchases in September even if this week’s employment data for May falls short of forecasts, Deutsche Bank’s Lavorgna wrote in a note to clients. While Goldman Sachs’s forecast remains for Fed officials to wait until December before slowing their $85 billion of monthly asset purchases, Hatzius said that so-called tapering could occur sooner.
“A September tapering is certainly possible, I think that is going to depend on the data,” Hatzius said in a Bloomberg Television interview at Goldman Sachs’s Global Macro Conference in London.
Pacific Investment Management Co.’s Bill Gross, manager of the world’s biggest bond fund, said the Fed’s zero-bound interest rate policy and quantitative easing programs are becoming more of a problem for an economy that needs structural reforms.
The Fed’s polices are “desperately attempting to cure an economy that requires structural as opposed to monetary solutions,” Gross wrote in his monthly investment outlook posted on Pimco’s website today. Central banks “seem to believe that higher and higher asset prices produced necessarily by more and more QE check writing will inevitably stimulate real economic growth via the spillover wealth effect.”
Among U.S. stocks moving today, Home Depot Inc., Alcoa Inc. and Microsoft Corp. dropped more than 1.6 percent to lead the Dow Jones Industrial Average down 77 points.
Salesforce.com Inc. dropped 7.9 percent after saying it will buy ExactTarget Inc. Dollar General Corp. fell 9.2 percent after reducing the top end of its full-year earnings forecast.
General Motors Co. gained 1.6 percent today after S&P said the automaker will replace H.J. Heinz Co. in the benchmark S&P 500 (SPX) after the close of trading on June 6. The change may prompt money managers to shift holdings to match the index. Heinz is being purchased by Warren Buffett’s Berkshire Hathaway Inc. and Jorge Paulo Lemann’s 3G Capital in a $23 billion buyout.
The Stoxx Europe 600 Index (SXXP) climbed for the first time in three days, rebounding from a one-month low. STMicroelectronics NV rallied 4.5 percent in Milan trading. Cobham Plc slid 4.6 percent, the most in six months, as an investor sold a stake worth about $170 million in the British maker of defense and aerospace equipment.
The Dollar Index advanced amid speculation faster U.S. economic growth will bolster investors’ risk appetite and increase demand for higher yielding assets. The gauge depreciated 0.9 percent yesterday, touching the lowest level since May 9.
Japan’s Topix rallied 2.6 percent after slumping 3.4 percent yesterday. The yen depreciated versus 13 of 16 major peers, losing 0.5 percent to 100.07 per dollar and slipping 0.5 percent to 130.77 against the euro. The Aussie dollar dropped 1.5 percent to 96.21 U.S. cents after surging 2.1 percent yesterday.
Thirty-year U.S. bond yields increased four basis points to 3.31 percent, while the rate on two-year Treasuries was up one basis point at 0.30 percent.
Italian 10-year bonds rose, pushing yields six basis points lower to 4.10 percent, while the rate on similar-maturity Spanish securities dropped five basis points to 4.42 percent.
The MSCI Emerging Markets Index (MXEF) snapped a four-day slump, adding 0.4 percent. Russia’s Micex Index advanced for the first time in five days, climbing 0.3 percent, while India’s Sensex lost 0.3 percent and Brazil’s Ibovespa retreated 0.2 percent. The Shanghai Composite Index slipped 1.2 percent.
Turkey’s benchmark equity index jumped 4.9 percent, the biggest gain since 2011, after yesterday tumbling the most in 11 years. Turkish bonds rebounded, sending the yield on two-year notes 75 basis points lower, reversing yesterday’s 71 basis-point jump. The lira strengthened 0.4 percent against the dollar, rebounding from a 17-month low.
Turkish demonstrators clashed with police overnight as Prime Minister Recep Tayyip Erdogan predicted an early end to the unrest and the U.S. urged police restraint.
Copper climbed 1.1 percent in New York on prospects for reduced supply of the metal as the world’s second-biggest mine remained closed following deadly accidents. Freeport-McMoRan Copper & Gold Inc.’s Grasberg mine in Indonesia will be shut for as long as three months while the government holds an investigation.
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