Fuels and precious metals led commodities lower and Treasuries rose before the Federal Reserve announces its plans for monetary policy tomorrow. The Standard & Poor’s 500 Index (XU100) fell while the benchmark gauge of equity volatility extended gains to a two-month high.
The S&P GSCI Index of commodities lost 0.5 percent by 4:36 p.m. in New York as gold and gas oil fell at least 1 percent. The S&P 500 slipped 0.3 percent to 1,781.00 as the VIX volatility gauge rose a sixth day to the highest level since October. The Stoxx Europe 600 Index fell 0.7 percent, paring back yesterday’s advance. Ten-year Treasury yields dropped four basis points to 2.84 percent and the yen rallied versus most peers. Turkey’s stocks and currency slid amid a corruption probe.
The cost of living in the U.S. was unchanged in November from a month earlier, a government report showed today, with the Fed to announce its decision tomorrow on whether it will maintain or reduce its $85 billion monthly bond buying program. The U.S. Senate advanced the government budget agreement to a final vote while German investor confidence increased more than economists forecast in December, data showed.
“There are so many people watching the Fed’s decision, so much money on the edge, that the market is sort of just jumpy right now,” Sam Wardwell, an investment strategist at Pioneer Investments in Boston, said in a phone interview. His firm manages about $225 billion. “Everybody knows the Fed is going to taper sooner or later. The question is, are people putting on too many short positions, or not enough short positions? This is everybody betting on the outcome so the market is going to be volatile.”
The Chicago Board Options Exchange Volatility Index rose 1.1 percent to close at 16.21, after earlier retreating as much as 1.4 percent. The gauge of S&P 500 (SPX) options known as the VIX gained in all but two of the past 16 days, adding more than 30 percent since Nov. 22. The S&P 500 has slipped 1.5 percent since its last closing record reached Dec. 9.
The Fed has kept its benchmark interest rate, the target for overnight loans between banks, at almost zero for five years. The odds of an increase by January 2015 are about 16 percent, based on data compiled by Bloomberg from futures contracts. About 34 percent of economists surveyed by Bloomberg on Dec. 6 predicted that the Fed will start paring bond purchases when it concludes a two-day policy meeting tomorrow.
No change in the consumer-price index followed a 0.1 percent decrease in the prior month, the Labor Department’s report showed today. The median forecast of 83 economists surveyed by Bloomberg called for a 0.1 percent advance. The core measure, which excludes food and fuel, rose 0.2 percent.
“What matters for the Fed is whether inflation as measured by the CPI or other such measures is proving problematic,” Dan Greenhaus, chief global strategist at BTIG LLC, said in a note to clients. “Today’s report once again shows that as of now, inflation is a concern for another day.”
There’s about a 60 percent chance that the Fed will announce a reduction in its asset purchase program tomorrow, according to Mohamed El-Erian, chief executive officer of Pacific Investment Management Co.
When the Fed does taper, U.S. central bank officials will offer a package of policies, which may include a change in how much they pay banks on excess reserves, thresholds for changing programs and forward guidance on policy, the Newport Beach, California-based asset manager said an in interview with Betty Liu and Cory Johnson on Bloomberg Television’s “In the Loop.”
“The idea is that the Fed is going to offer the market a package, and the market is going to be reacting to the package and not just one element, which is the taper,” said El-Erian of Pimco, which oversees $1.97 trillion as the world’s largest manager of bond funds. “The question is what else do they do, and I think that’s what the market hasn’t priced in fully yet, which is what else can accompany the taper decision.”
The S&P 500 rose 0.6 percent yesterday. The measure of U.S. stocks has advanced 25 percent this year, heading for its biggest annual rally since 2003. The Stoxx 600 in Europe has climbed 11 percent this year.
Among U.S. stocks moving today, Tenet Healthcare Corp. fell 1.9 percent to lead declines among hospital stocks as Citigroup Inc. said the industry’s November admissions were the “weakest” ever. 3M Co. (MMM) advanced 2.9 percent after the company projected a 2014 profit range with a top end that exceeded analysts’ estimates. Boeing Co. (BA) climbed 0.9 percent after authorizing the largest share buyback in its history and boosting its dividend.
The U.S. Senate advanced the budget deal to a final vote by tomorrow with Republicans divided on their support for the measure. The Senate voted 67-33 to end debate on the $1.01 trillion U.S. spending plan. The measure passed the House 332-94 Dec. 12 with almost equal numbers of Republicans and Democrats in support. The plan raises fees including for airline passengers, and is projected to reduce the budget deficit by $23 billion over 10 years.
Gold futures for February delivery lost 1 percent to $1,231.40 an ounce and gas oil, sugar and silver declined at least 1 percent as 16 of 24 commodities tracked by the S&P GSCI Index dropped. Corn, soybeans, zinc and lead had the biggest gains. Brent crude fell 0.9 percent to $108.44 a barrel while West Texas Intermediate oil lost 0.3 percent to $97.22.
The yen increased against 14 of 16 major peers and the Bloomberg U.S. Dollar Index, which tracks the greenback against 10 major currencies, was little changed after falling the past two days.
The dollar weakened 0.4 percent at 102.63 yen after touching 103.92 yen Dec. 13, the strongest level since October 2008. The greenback was little changed at $1.3765 per euro. The 17-nation common currency traded down 0.3 percent at 141.26 yen.
The difference in yields on Treasury five- and 30-year securities widened to as much as 2.4 percentage points. Thirty-year bond yields jumped as much as two basis points, or 0.02 percentage point, after the CPI data before declining two basis points to 3.87 percent. The five-year note yield slipped amid bets Fed policy makers may offer more guidance on their timing for an eventual increase in the benchmark interest-rate target. The Treasury is holding four note auctions this week.
U.S. government securities due in a decade and longer have fallen more than 11 percent in 2013 to yesterday, the biggest loss among 144 debt indexes tracked by Bloomberg and the European Federation of Financial Analysts Societies.
Almost two shares fell for each that rose in the Stoxx 600. CGG SA (CGG) tumbled 17 percent in Paris after the world’s biggest seismic surveyor of oilfields cut its 2013 profit forecast. DKSH Holding Ltd. dropped 3.8 percent in Zurich after Credit Suisse Group AG cut its rating on the market-expansion services company.
Wirecard AG gained 1.5 percent in Frankfurt after Exane BNP Paribas raised its rating on the German maker of electronic-payment software. Zurich Insurance Group AG (ZURN) climbed 1.9 percent in Zurich as Swiss Re Ltd.’s Chief Financial Officer George Quinn quit to join Switzerland’s biggest insurer.
The ZEW Center for European Economic Research said that its index of investor and analyst expectations, which aims to predict economic developments six months in advance, jumped to 62.0 from 54.6 in November. Economists predicted an increase to 55.0, according to the median of 35 estimates in a Bloomberg News survey.
The Turkish lira depreciated 0.4 percent after local media said that sons of the economy and interior ministers and state-run Turkiye Halk Bankasi AS’s chief executive officer were among those arrested as part of a corruption probe. The Borsa Istanbul National 100 Index of Turkish stocks dropped 5.2 percent, the steepest decline since June.
The Peruvian new sol, Colombia’s peso and South African rand were the worst performers today out of 24 emerging-nation currencies monitored by Bloomberg.
The Aussie dollar touched NZ$1.0763, the lowest level since October 2008, as Australia forecast a wider budget deficit while New Zealand projected a bigger operating surplus.
In its mid-year economic forecast today, the Australian government said the budget deficit will increase to A$47 billion ($42 billion) in the year through June, from an August projection of A$30.1 billion. In contrast, New Zealand forecast an operating surplus of NZ$86 million ($71 million) in the year through June 2015, from a May projection of NZ$75 million, Finance Minister Bill English said in a fiscal update today.
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