Treasuries slid, sending 10-year yields to a two-year high, amid bets the Federal Reserve will reduce its bond purchases next month. U.S. stocks fell, extending the worst week for the Dow Jones Industrial Average (INDU) in 14 months. Metals rallied after housing starts increased.
Rates on benchmark 10-year notes surged six basis points to 2.83 percent, the highest since July 2011. The S&P 500 Index decreased 0.3 percent to a five-week low of 1,655.83 and the Dow extended its weekly loss to 2.2 percent. Copper rose 1.3 percent to $7,400 a metric ton and zinc, lead and aluminum added at least 1.9 percent. India’s Sensex index sank the most since 2011 as the rupee dropped to a record. Brazil’s real slid against all major peers after the finance minister said a weaker currency is good for local industry.
U.S. housing starts climbed 5.9 percent to an 896,000 annualized rate in July from a revised 846,000 pace in June that was higher than previously reported, Commerce Department figures showed today. Another report indicated consumer confidence slipped this month. The Fed will reduce its monthly bond purchases next month, according to 65 percent of economists in a Bloomberg survey published this week.
“It does feel like the U.S. economy is gaining a bit of momentum,” said William Hobbs, head of equity strategy at Barclays Plc’s wealth-management unit. “Investors have been trying to decide whether good news is bad news,” he said. “What might freak the markets out now is the pace of tapering.”
Rates on 30-year bonds jumped three basis points to 3.84 percent, also the highest since 2011, while two-year yields were little changed at 0.34 percent.
The difference between yields on five- and 10-year notes widened to almost the most in two years, suggesting investors are betting faster growth will lead to higher long-term borrowing rates. Data yesterday showing improvement in the jobs market reinforced expectations the Fed will cut stimulus.
Among stocks moving today in the U.S., Nordstrom Inc. dropped 4.9 percent, the most in 14 months, after the department store chain cut its annual sales forecast. Aspen Technology Inc. jumped 7.9 percent after reporting fourth-quarter revenue that beat analysts’ predictions. Pandora Media Inc. added 2.5 percent after Goldman Sachs Group Inc. raised its rating on the stock.
The S&P 500 lost 2.1 percent this week, the most since June, and has retreated more than 3.1 percent since reaching its last record on Aug. 2.
’’The market still feels fragile, we are still in a risk-off environment,’’ Tom Mangan, who helps oversee about $4.4 billion as a money manager at James Investment Research Inc. in Xenia, Ohio, said in a telephone interview. “The fear component has got the upper hand. That’s not surprising. There is plenty of reason to be conservative here and cautious, but there is no reason to be super bearish.”
Investors seeking shelter from yesterday’s $100 billion stock selloff pushed volume to a two-month high in U.S. equity volatility futures, contracts that have already seen more trading in 2013 than all of last year.
About 234,000 futures contracts on the Chicago Board Options Exchange Volatility Index, or the VIX, changed hands yesterday. That’s the most since June 21, as the S&P 500 (SPX) reached a one-month low, according to data compiled by Bloomberg. Trading in the securities has exceeded 24.7 million since January, 5 percent more than the 2012 total and double the level from 2011.
An index of homebuilders jumped as much as 3.4 percent today, before paring its gain to 0.1 percent. The median estimate of 82 economists surveyed by Bloomberg was for a 900,000 increase in housing starts. Multifamily construction surged 26 percent, while work began on 2.2 percent fewer single-family homes.
Another report showed consumer confidence in the U.S. unexpectedly dropped in August from a six-year high as Americans faced rising interest rates. The Thomson Reuters/University of Michigan preliminary index of consumer sentiment for this month fell to 80 from 85.1 in July, which was the highest since July 2007. The median projection of 68 economists surveyed by Bloomberg called for little change at 85.2.
“People seem to be in a mode of not being too excited about the U.S. right now,” Brian Burrell, equity research analyst for Thornburg Investment Management Inc., said in a telephone interview from Santa Fe, New Mexico. His firm oversees about $90 billion. “People are scrutinizing these data points and trying to get a read on what is going to happen and how the Fed is going to react.”
Today’s 0.3 percent gain left the Stoxx Europe 600 Index up about 0.1 percent for the week. Deutsche Lufthansa AG fell 1.3 percent as Morgan Stanley downgraded shares of Europe’s second-largest airline. A.P. Moeller-Maersk A/S rallied almost 10 percent after the owner of the world’s biggest container-shipping line raised its profit forecast.
The MSCI Emerging Markets Index fell for a second day, losing 0.5 percent and trimming this week’s advance to 0.5 percent. Brazil’s Ibovespa Index rallied 1.1 percent for an eighth straight gain, its longest rally since January 2012. The real slid at least 1.5 percent against all 16 major peers.
Brazil Finance Minister Guido Mantega said a weaker currency was good for local industry, deepening a selloff in the real sparked by concern the U.S. will curb monetary stimulus.
The real currency has lost 15 percent in the past three months, boosting the cost of imports and adding to inflation that already exceeds central bank targets. The exchange rate is at a level that’s good for local industry, Mantega told reporters in Sao Paulo today. The currency will be volatile until U.S. policy makers clarify their plans for paring back an $85 billion a month bond-buying program, he said.
The Shanghai Composite Index dropped 0.6 percent as Anhui Conch Cement Co., China’s biggest cement maker, fell on worse-than-estimated earnings.
China’s market was roiled by a 53 percent surge in trading volumes that had sent the index to its biggest intraday gain since March 2009 following a trading error at Everbright Securities Co.
India’s Sensex dropped 4 percent, the biggest decline since September 2011, as banking stocks tumbled amid concern the central bank’s measures to bolster the nation’s currency are failing. The rupee slid as much as 0.9 percent to 62.0050 per dollar. The currency has depreciated 4.4 percent in the past three weeks.
West Texas Intermediate oil rose 13 cents to $107.46 a barrel for a sixth straight gain as a weather system headed for the Gulf of Mexico. Enbridge Inc., Marathon Oil Corp. and BP Plc were among companies removing personnel from facilities in the Gulf region. In Egypt, the Muslim Brotherhood urged supporters onto the streets after noon prayers to protest the killing of hundreds of their people by security forces in a crackdown this week.
Egypt’s benchmark bonds capped the steepest three-day drop in 14 months.
The 5.75 percent dollar-denominated debt maturing April 2020 fell 4.4 percent in the past three days, as per data compiled by Bloomberg. That’s the most since the period ended June 22, 2012, the final trading day before Mohamed Mursi, who was ousted by the army last month, was declared Egypt’s first democratically elected president. The London-traded shares of Commercial International Bank Egypt SAE (CBKD) fell to a one-month low.
Egypt’s default risk rose to a five-week high. The bloodiest day in Egypt’s recent history and its aftermath, which left at least 600 dead according to official figures, triggered the closing of the nation’s stock exchange and banks yesterday.
The dollar was up 0.2 percent at 97.55 yen and rose 1.4 percent this week. The Bloomberg U.S. Dollar Index added 0.2 percent, bringing this week’s advance to 0.5 percent.
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