Treasuries (USGG10YR) and gold retreated while the dollar strengthened after minutes from the Federal Reserve’s last meeting indicated policy makers see risks to financial stability from continued monthly bond purchases. Sugar slid to a 3 1/2-year low and oil resumed declines.
Ten-year Treasury yields rose five basis points to 2.99 percent by 4:36 p.m. in New York. The Standard & Poor’s 500 Index pared declines to close down less than 0.1 percent at 1,837.49. Gold futures fell 0.3 percent while the greenback climbed versus 14 of 16 major peers. Crude fell to the lowest level in six weeks after U.S. fuel supplies rose. Sugar declined 2 percent amid a supply glut. Ten-year Spanish bonds jumped after euro-area retail sales rose more than estimated.
Fed policy makers saw diminishing economic benefits from the central bank’s record bond buying program and expressed concern over the potential for “excessive risk-taking in the financial sector,” according to minutes of their last meeting, when they took the first step to cut the pace of purchases. A private report showed U.S. companies hired more workers than projected in December, firming the case for tapering stimulus as investors await nonfarm payroll data later this week.
“The market wants quick and easy answers,” John Manley, who helps oversee about $233 billion as chief equity strategist for Wells Fargo Funds Management in New York, said in a phone interview. “I don’t think the Fed minutes made exactly clear which way the Fed is going, because the Fed does not yet know which way to go. The Fed will respond to the economy.”
The Fed said after its Dec. 17-18 meeting that it would reduce monthly bond purchases by $10 billion to $75 billion beginning in January. Recent improvement in jobs, manufacturing and housing data has affirmed policy makers’ view that the world’s biggest economy is recovering enough to take the first step toward exiting stimulus that has swelled the Fed balance sheet to more than $4 trillion.
Policy makers will gather Jan. 28-29 to consider the next step in their strategy. The minutes released today didn’t describe a set schedule for the pace of asset-purchase reductions, although “a few” officials mentioned the need for a “more deterministic path.”
The Fed will probably taper asset buying in $10 billion increments over the next seven meetings before ending them in December, according to a Dec. 19 Bloomberg News survey of economists.
“The Fed is going to continue to push the message of moderate tapering, but I think they will provide a very bullish outlook for the economy,” said Ian Stannard, head of European foreign-exchange strategy at Morgan Stanley in London. “We are looking for the dollar to continue to gain broad-based support.”
Companies in the U.S. boosted payrolls by 238,000 in December, compared with a 200,000 advance predicted in a Bloomberg survey, ADP Research Institute data today showed. The Labor Department publishes Jan. 10 the unemployment rate and hiring figures for last month.
Treasuries fell for the first time in three days, as the government auctioned $21 billion of 10-year notes amid speculation economic growth is accelerating enough to spur the Fed to further reduce its stimulus.
The benchmark U.S. yield is currently higher than rates for 15 of 24 developed countries, according to data compiled by Bloomberg. The next lowest is the U.K. at 2.96 percent, while the next highest is Ireland at 3.52 percent.
“After the better-than-expected ADP number, the expectations for the jobs report on Friday are rising and that has caused the spike in yield,” said Gabriel Mann, a U.S. government-bond strategist at Royal Bank of Scotland Group Plc’s RBS Securities unit in Stamford, Connecticut, one of 21 primary dealers that trade with the Fed. “Unless we get a very strong report it will be tough to move much higher in yields. We are buyers of dips at these levels.”
The Bloomberg U.S. Dollar Index, which tracks the greenback against 10 major peers, added 0.2 percent to 1,028.83, after touching 1,030.12, the highest level since Sept. 9. It climbed 0.3 percent to $1.3579 per euro and reached a one-month intraday high today. The dollar added 0.2 percent in a second day of gains against the yen.
South Africa’s rand weakened 1.2 percent and touched the lowest intraday level in more than five years against the dollar. The South Korean won snapped a three-day drop, climbing 0.4 percent versus the dollar.
Among U.S. stocks moving today, Twitter Inc. (TWTR) dropped 3.5 percent, falling for a third day, after an analyst downgrade. Ford Motor Co. gained 1 percent after Chief Executive Officer Alan Mulally ruled himself out for the top job at Microsoft Corp. Micron Technology Inc. jumped 9.9 percent after reporting quarterly revenue that topped estimates. Forest Laboratories Inc. rallied 18 percent as it agreed to buy Aptalis Pharma for $2.9 billion.
The S&P 500 (SPX) rose 0.6 percent yesterday, snapping a three-day drop.
HSBC Holdings Plc cut U.S. stocks to underweight from neutral, citing high valuations compared with the rest of the world, earnings near record highs and the possible removal of monetary stimulus at a faster rate than in other developed markets. Companies in the S&P 500 traded at 17.3 percent reported earnings, up from 14.5 at the start of 2013.
Global equity values are close to reaching a record for the first time since 2007. The total market capitalization of stocks around the world has risen to $61.5 trillion, near the all-time high of $62.6 trillion reached October 2007, according to data compiled by Bloomberg.
The Stoxx Europe 600 Index rose 0.1 percent today for a second day of gains. A gauge of banks in the index climbed 1.3 percent, the biggest increase among 19 industry groups. Trading volumes in the Stoxx 600 were 53 percent above the average over the past 30 days, according to data compiled by Bloomberg.
SAP AG, the world’s biggest enterprise-software company, added 1.7 percent after UBS AG recommended investors buy the shares.
Kion Group AG slid 2 percent after its biggest shareholder put a 10.8 percent stake in the forklift maker on sale. SCOR SE lost 1.2 percent after Les Echos reported the French reinsurer may take control of Mutre Reinsurer, which is owned by Scor, Matmut and a group of 14 shareholders connected to La Mutualite Francaise.
Spain’s 10-year bond yield fell as much as seven basis points, or 0.07 percentage point, to 3.74 percent today, the lowest level since December 2009.
Gold futures for February delivery declined to $1,225.50 an ounce in a third day of losses, while silver futures slid 1.3 percent to $19.539 an ounce.
The S&P GSCI gauge of 24 commodities dropped 0.7 percent, extending the decline this month to 3.4 percent, the worst start to a year since 2007. Natural gas led the drop, losing 1.9 percent to a one-month low in New York on forecasts the polar blast boosting heating fuel demand across the U.S. will be followed by milder weather.
West Texas Intermediate crude for February delivery dropped 1.4 percent to $92.33 a barrel in New York, the lowest settlement since Nov. 27. The price fell for the sixth time in seven days, as a government reports showed U.S. inventories of gasoline and distillates, including diesel fuel and heating oil, each climbed more than twice as much as analysts predicted in the week ended Jan. 3.
Raw sugar for March delivery slid 2 percent to settle at 15.74 cents a pound on the ICE Futures U.S. in New York, after falling to 15.69 cents, the lowest level for a most-active contract since July 1, 2010.
The 2014 cane harvest in Australia, the world’s third-biggest sugar exporter, may exceed 32 million metric tons, compared with about 30.5 million a year earlier, producers’ group Canegrowers said today. In Brazil, the largest producer, rains this week will boost the crop, Somar Meteorologia said yesterday.
The MSCI Emerging Markets Index rose 0.2 percent after five days of losses. Indian stocks rallied from a three-week low and benchmark gauges in Brazil, the Czech Republic, Indonesia and the Philippines advanced at least 0.3 percent.
The Hang Seng China Enterprises Index (HSCEI) of mainland Chinese shares traded in Hong Kong climbed 0.9 percent, rebounding from a more than two-month low. The Shanghai Composite Index slipped 0.2 percent on concern the resumption of initial public offerings will divert funds. The China Securities Regulatory Commission approved seven IPOs yesterday, bringing the total number of those approved to 38.
Turkish stocks fell for the first time in three days and the lira weakened after JPMorgan Chase & Co. (JPM) lowered its recommendation on the country’s equities to underweight from neutral as the outlook for higher rates cut growth prospects. Further “political noise” may drive more pressure on the lira, analysts wrote in an e-mailed report today.
The nation’s ruling party will continue to purge police and judiciary members pursuing corruption charges against government officials and will then seek to prosecute them for attempting a coup, Osman Can, a member of the central committee of Prime Minister Recep Tayyip Erdogan’s Justice and Development Party, said in a Jan. 6 interview in Istanbul.
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