U.S. stocks fell the most in a month and Treasuries dropped on speculation the budget agreement will make the Federal Reserve more confident to reduce stimulus. Gasoline and oil slid while the yen and euro strengthened.
The Standard & Poor’s 500 Index (SPX) slipped 1.1 percent to 1,782.22 by 4:30 p.m. in New York and the Stoxx Europe 600 Index lost 0.5 percent. Ten-year Treasury yields increased for the first time in four days. Oil retreated 1.1 percent to $97.44 a barrel after reaching a six-week high yesterday and gasoline decreased 0.7 percent to $2.6632 a gallon. The yen strengthened 0.5 percent to 102.39 per dollar, rebounding from a six-month low, and the euro advanced versus most major peers.
American lawmakers announced a budget deal yesterday that would ease automatic spending cuts by about $63 billion over two years and reduce the deficit by $20 billion to $23 billion. The agreement comes after a report last week showed the jobless rate fell to a five-year low and more economists predicted Fed policy makers will start cutting the $85 billion-a-month in stimulatory bond purchases at their meeting next week.
“Markets are increasing their views that we are a week or so away from tapering because of improving economic data and clearing the hurdle for a budget deal,” Jeffrey Kleintop, chief market strategist at LPL Financial LLC in Boston, said in a phone interview. “This deal is great, it’s a positive, but also a negative because it could prompt the Fed to taper sooner.”
The Federal Open Market Committee may begin reducing economic stimulus at its Dec. 17-18 meeting, according to 34 percent of economists surveyed Dec. 6 by Bloomberg, an increase from 17 percent in a Nov. 8 survey.
Commodity, health-care, industrial and financial stocks fell at least 1.4 percent as a group to lead losses in nine of the 10 main industries in the S&P 500 today. Laboratory Corp. of America Holdings plunged 11 percent after issuing a profit forecast below analysts’ estimates.
Cisco Systems Inc. dropped 1.6 percent after losing a European Union court bid to overturn EU approval of Microsoft Corp.’s 2011 takeover of Skype Technologies SA. MasterCard Inc. rallied 3.5 percent after saying its board of directors approved an 83 percent dividend increase and, 10-for-1 stock split and $3.5 billion share-buyback plan.
The S&P 500 fell 0.3 percent yesterday after reaching a record 1,808.37 Dec. 9. The gauge is up 25 percent in 2013, set for its best year in a decade.
The budget compromise, worked out between chief negotiators Senator Patty Murray and Representative Paul Ryan, would set spending at about $1.01 trillion in the current fiscal year, higher than the $967 billion required in a 2011 budget plan. The deal needs to pass both chambers of Congress.
Fitch Ratings said the proposal signals “an improvement in the functioning of budget policymaking” and suggests a reduced risk that political brinkmanship will cause another government shutdown or debt-ceiling crisis.
Ten-year Treasury yields rose five basis points, or 0.05 percentage point, to 2.86 percent. U.S. 10-year notes are headed for the worst annual performance in four years as the government sold $21 billion of the debt to lower-than-average demand in its last auction of the securities for 2013.
About two stocks fell for each that rose in the Stoxx 600, with trading volumes 8.3 percent below the 30-day average. The regional benchmark gauge advanced 12 percent this year for its second straight year of gains.
Natixis (KN) SA jumped 3.1 percent after Exane BNP Paribas SA raised its rating on the stock. FirstGroup Plc climbed 4.8 percent after the U.K. rail company that owns the Greyhound bus brand opposed a shareholder plan to split the company.
Royal Bank of Scotland Group Plc (RBS) lost 2.9 percent as Nathan Bostock resigned after two months as chief financial officer. Bpost SA fell 5.3 percent as CVC Capital Partners Ltd. sold 39.3 million shares in the Belgian postal operator.
The MSCI Emerging Markets Index fell a second day, sliding 1 percent for its biggest drop in a week. Brazil’s Ibovespa lost 1.8 percent to a three-month low. The Shanghai Composite Index (SHCOMP) dropped 1.5 percent, the most in a month, and the Hang Seng China Enterprises Index of mainland Chinese companies traded in Hong Kong lost 2.7 percent, the biggest decline since August.
China’s central economic work conference, which started yesterday and is expected to end tomorrow, will set the tone for macroeconomic policy and decide major targets for 2014. Policy makers should phase out proactive fiscal stimulus, the China Securities Journal said in a front page commentary today.
Ukraine’s hryvnia weakened for a second day, losing 0.2 percent versus the dollar, while the nation’s benchmark stock index was little changed. Activists swarmed into central Kiev, reclaiming the center of anti-government protests after an overnight police raid that left dozens injured.
The yen rose against all 16 major counterparts. It touched 103.39 per dollar yesterday, the weakest level since May 23. Japan’s currency gained 0.2 percent to 141.26 per euro after reaching 142.17 yesterday, a level last seen in October 2008. The dollar strengthened against 10 of 16 major peers and the euro climbed versus 15, rising 0.2 percent to $1.3788.
New Zealand’s dollar was down 0.6 percent at 82.63 U.S. cents, paring a loss of as much as 1.3 percent as the central bank stepped up its inflation-fighting rhetoric and signaled it will start raising interest rates in the first half of next year as the economy strengthens.
“The bank will increase the official cash rate as needed in order to keep future average inflation near the 2 percent target midpoint,” Reserve Bank of New Zealand Governor Graeme Wheeler said in statement in Wellington today after leaving the benchmark rate at a record-low 2.5 percent. In October, he said increases “will likely be required” in 2014.
West Texas Intermediate crude briefly trimmed declines earlier in the day after the release of the weekly U.S. inventories report. The Energy Information Administration said oil supplies dropped 10.6 million barrels in the week ended Dec. 6. Analysts surveyed by Bloomberg had forecast a decrease of 3 million. The International Energy Agency raised estimates for 2014 global oil demand amid an economic recovery in the U.S.
Gasoline, lean hogs and WTI oil fell at least 0.7 percent to leave the S&P GSCI Index little changed even as 17 of its 24 commodities advanced. Gold futures slipped 0.8 percent to $1,251.20 an ounce, falling from a three-week high. Industrial metals advanced for a fourth day, as aluminum, nickel, lead and copper rose more than 0.7 percent.
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