Asian equity futures tracked gains in U.S. stocks while the yen held declines against most major currencies as investors assessed prospects for less economic stimulus before this week’s Federal Reserve meeting. Treasuries dropped and natural gas rebounded.
The Standard & Poor’s 500 Index (SPX) closed 0.8 percent higher at 1,639.04 in New York, trimming an earlier advance of as much as 1.2 percent. Futures on the Nikkei 225 Stock Average were little changed, after the index jumped 2.7 percent yesterday, while contracts on Hong Kong’s Hang Seng Index added 0.4 percent. S&P/ASX 200 futures expiring this month gained 0.2 percent. Japan’s currency depreciated against 14 of 16 major peers after surging versus the dollar last week. Yields on 10-year Treasuries rose five basis points to 2.18 percent.
With the Federal Open Market Committee starting its two-day policy meeting today, data in the U.S. showed manufacturing in the New York area climbed to the highest level since March this month and U.S. homebuilder confidence soared to a seven-year high. The MSCI All-Country World Index gained 0.9 percent yesterday as a British official said Group of Eight leaders see downside risks to the global economy abating even as growth prospects remain weak.
“We continue to have these momentary scares around what the next step for the Fed might be, which seems to send some chills up the spine of the market, but that’s a little overdone,” James Dunigan, who helps oversee $112 billion as chief investment officer in Philadelphia for PNC Wealth Management, said by phone. “We’re ahead of ourselves with regard to the Fed acting anytime soon in reducing the support that it’s providing for the economy.”
About $2.7 trillion has been erased from the value of global equities since Fed Chairman Ben S. Bernanke said May 22 that U.S. policy makers “could” scale back stimulus efforts should the employment outlook show “sustainable improvement.” Stocks retreated from earlier highs today after the Financial Times reported that Bernanke may signal the central bank is close to tapering its $85 billion in monthly asset purchases.
The S&P 500 fell 0.6 percent June 14, and slid 1 percent last week, after the International Monetary Fund cut its forecast for U.S. economic growth in 2014 to 2.7 percent from 3 percent and said any trimming of Fed support needs to be handled properly. The benchmark equity gauge rallied an average 16 percent over two years the last four times the Fed started raising interest rates, according to data compiled by Bloomberg.
“If the Fed does decide to remove some if its support, the truth of the matter is, historically, equity markets can survive in a rising rates environment,” Alan Gayle, a senior strategist at RidgeWorth Capital management in Richmond, Virginia, which oversees about $48 billion of assets, said in a phone interview.
Leaders of the G-8 nations say the worst has passed for the global economy, an aide to U.K. Prime Minister David Cameron said after summit talks on promoting employment and growth. While economic prospects remain weak, risks of weakness have eased due to actions taken by policy makers in the U.S., euro area and Japan, and to the resilience of emerging-market economies, the aide said, following the meeting in Enniskillen, Northern Ireland.
The yen weakened 0.2 percent to 94.65 per dollar by 6:24 a.m. in Tokyo, after slipping 0.2 percent to 94.51 yesterday. The currency depreciated 0.1 percent to 126.49 per euro. The Australian dollar was little changed at 95.53 U.S. cents before the release of the Reserve Bank of Australia’s June policy meeting minutes, when the regulator kept the cash rate target at 2.75 percent. U.S.Treasuries declined for the first time in three days.
Investors have been monitoring U.S. economic reports to determine whether growth is strong enough to prompt the Fed to scale back stimulus measures. The Fed Bank of New York’s general economic index climbed to 7.8, a report yesterday showed. Readings of greater than zero signal expansion in New York, northern New Jersey and southern Connecticut. The median projection in a Bloomberg survey of 51 economists called for a reading of zero.
Confidence among U.S. homebuilders surged in June to the highest level in seven years, reflecting gains in sales as Americans rushed to take advantage of low mortgage rates. An S&P index of homebuilders jumped 2 percent, with PulteGroup Inc. and Toll Brothers Inc. advancing more than 2.4 percent.
Nine of 10 groups in the S&P 500 advanced, with energy and technology stocks rising the most.
The Chicago Board Options Exchange Volatility Index, or VIX (VIX), fell 2 percent to 16.80. The equity volatility gauge, which moves in the opposite direction as the S&P 500 about 80 percent of the time, reached a six-year low in March and has since surged 49 percent.
The Stoxx Europe 600 Index climbed 0.7 percent after posting four straight weeks of losses, with trading volume 20 percent less than the 30-day average. The MSCI Emerging Markets Index rose 0.4 percent.
Natural gas climbed, capping the biggest gain in seven weeks, on forecasts for hotter weather in late June that would spur demand from power plants. Futures for July delivery rose 3.8 percent to $3.875 per million British thermal units.
Crude oil fluctuated near a nine-month high, settling at $97.77 a barrel in New York, down 0.1 percent. The price climbed as much as 0.9 percent, the most since Sept. 14.
Soybeans declined for the fourth straight session in the U.S., capping the longest slump in seven weeks, as drier conditions in the U.S. accelerated planting and boosted crop development. Futures slid 1 percent to close at $12.855 a bushel. Corn rebounded, reversing an early decline.