U.S. stocks slumped, with the Dow Jones Industrial Average sliding to the lowest close in a month, while Treasuries rose after a gauge signaled contraction in Chinese manufacturing. Emerging-markets equities slipped and the dollar retreated while gold and natural gas climbed.
The Standard & Poor’s 500 Index fell 0.9 percent as the Dow sank 1.1 percent. The MSCI Emerging Markets Index slid 1.3 percent by 4:44 p.m. in New York after Chinese shares in Hong Kong tumbled. Ten-year Treasury yields sank to a seven-week low and the dollar lost 1.1 percent versus the euro. Gas jumped 0.9 percent and gold rose to the highest level since November. Turkey intervened to stem the lira’s slump while Argentina devalued the peso, sparking the steepest plunge in 12 years.
Chinese factory output may shrink this month, a preliminary survey from HSBC Holdings Plc and Markit Economics indicated today as the People’s Bank of China injected more funds to the financial system to ease a cash shortage. In the U.S., applications for unemployment benefits rose in the latest week while purchases of previously owned homes climbed less than projected in December. Microsoft Corp. jumped in extended trading after posting better-than-estimated quarterly earnings.
“Any kink in the growth story would give this market a reason to sell off a little bit,” James Dunigan, who helps oversee $118 billion as chief investment officer in Philadelphia at PNC Wealth Management, said by phone. “The Chinese PMI was the start of that, and you get some piling on with the emerging markets. Nobody should be surprised if we get a little pullback of some sort. The overall story is the foundation is still there, the economy is improving.”
The S&P 500 is down 1.1 percent in 2014, after last year’s 30 percent surge to a record, while the Dow has tumbled 2.3 percent. Three rounds of Federal Reserve economic stimulus has helped the S&P 500 rise more than 170 percent from a 12-year low reached in 2009.
The rally has boosted equity valuations to near the highest level since 2009. The S&P 500 trades at 15.5 times the estimated earnings of its members, exceeding the five-year average multiple of 14.1, data compiled by Bloomberg show.
Data in the U.S. today showed jobless claims rose by 1,000 to 326,000 in the week ended Jan. 18. The median forecast of 50 economists surveyed by Bloomberg was for an increase to 330,000. Purchases of previously owned homes climbed 1 percent in December, also less than projected. The Conference Board’s index, a measure of the U.S. outlook for the next three to six months, climbed 0.1 percent after a revised 1 percent gain the prior month, the New York-based group said today.
Fed officials scrutinize labor data to determine the timing and pace of any reductions to their economic stimulus. The U.S. central bank, which next meets Jan. 28-29, decided at its December meeting to start cutting monthly bond purchases by $10 billion to $75 billion.
Treasuries rose, snapping two days of losses. Ten-year yields fell nine basis points, or 0.09 percentage point, to 2.78 percent, extending its decline below the level reached when the Fed voted last month to taper its bond buying.
“We’re still looking for an acceleration in global growth and none of the data we saw this morning changed that,” John Canally, an economic strategist at LPL Financial Corp., said in a phone interview from Boston. His firm oversees about $414.7 billion.
Investors this week have also been analyzing earnings from International Business Machines Corp. to Delta Air Lines Inc. and Coach Inc. Of the 109 index members that have posted results so far this season, 74 percent have beaten estimates for profit and 67percent have exceeded sales projections, according to data compiled by Bloomberg.
Per-share profit for companies in the benchmark probably climbed 6 percent in the fourth quarter, while sales increased 2.2 percent, according to analysts surveyed by Bloomberg.
Microsoft gained more than 3 percent in trading after U.S. markets closed as it reported second-quarter profit and revenue that exceeded analysts’ projections.
Nine of the 10 main groups in the S&P 500 retreated today. The Morgan Stanley Cyclical Index tumbled 1.2 percent. Cliffs Natural Resources Inc. slipped 4.3 percent as raw-materials producers dropped 1.5 percent for the second-biggest decline on the S&P 500. JPMorgan Chase & Co. and American Express Co. slid at least 1.9 percent to pace losses among financial firms.
American Eagle Outfitters Inc. lost 7.8 percent after saying its chief executive officer is leaving. Netflix Inc. surged 16 percent as it projected customer growth that topped analysts’ estimates. Union Pacific Corp. climbed 3.3 percent as the railroad’s profit beat forecasts.
The Stoxx Europe 600 Index declined 1 percent, the most since Dec. 3, falling from the highest close since January 2008.
U.K. publisher Pearson Plc (DELB) lost 8.2 percent after reporting higher costs to push into digital services and emerging markets. EasyJet Plc fell 4.1 percent after Europe’s second-biggest discount airline said it expects to report a first-half 2014 pretax loss of as much as 90 million pounds ($149 million), compared with a loss of 61 million pounds a year earlier. Nokia Oyj slid 11 percent after it predicted shrinking profit margins for its network-equipment division.
Logitech International SA (LOGN), the world’s biggest maker of computer mice, rallied 18 percent after reporting quarterly profit and sales that exceeded analysts’ estimates. Delhaize Group SA rose 7.2 percent as the owner of the Food Lion supermarket chain said fourth-quarter results in the U.S. and Belgium beat estimates.
The MSCI gauge of developing nations fell the most since November, retreating for the fifth time in six days.
The Hang Seng China Enterprises Index (HSCEI) of mainland Chinese companies listed in Hong Kong declined 2.1 percent and the Shanghai Composite Index lost 0.5 percent. The preliminary reading of 49.6 for a Purchasing Managers’ Index released today by HSBC and Markit compares with a final figure of 50.5 in December and a 50.3 median estimate of 19 analysts in a Bloomberg survey. Readings below 50 signal contraction.
“China has been the growth story for the better part of 10 or 15 years, and all of a sudden we’re starting to see contraction,” Chris Bouffard, chief investment officer of the Mutual Fund Store in Overland Park, Kansas, which oversees $8.5 billion, said in a phone interview. “That’s going to take a while for market participants to get comfortable with.”
The Bloomberg Dollar Spot Index, which tracks the U.S. currency versus 10 major peers, snapped a seven-day advance, sinking 0.5 percent in the biggest one-day decline since Oct. 22.
The euro gained against 11 of its 16 major peers, advancing the most in almost four weeks to $1.3696. Gauges of manufacturing and services industries in the euro area expanded more than forecast, according to Markit Economics. The yen appreciated 1.2 percent to 103.22 per dollar.
Argentina devalued the peso, sending the currency 13 percent lower to 7.8825 per dollar as the central bank scaled back efforts to support it in order to preserve foreign-currency reserves.
The Turkish lira weakened a ninth day, losing 1.5 percent to 2.2912 per dollar. The nation’s central bank bought local currency because of “unhealthy price formations” in the market, according to a statement on its website. The lira has tumbled 13 percent since a probe into government graft erupted Dec. 17. The Fed said the next day it would start paring stimulus that has helped spur demand for higher-yielding assets.
“People are trying to get out of emerging markets,” Bhanu Baweja, the head of emerging-market cross-asset strategy at UBS AG, said by phone from London. “Currencies are the weakest link in emerging-market assets. I cannot say that today is the day of reckoning, but more and more people will pay attention to what happens to other emerging-market assets.”
The cost to protect Ukrainian debt against non-payment using five-year credit-default swaps jumped to 859 basis points, the highest level since Dec. 18, data compiled by Bloomberg show.
Opposition leaders yesterday urged a national strike and gave President Viktor Yanukovych a 24-hour deadline to meet demands for snap elections and annulment of anti-protest laws. Three days and nights of clashes left as many as five people dead and about 2,000 injured as the government gave police special powers to quell demonstrations.
Thailand’s baht fell the most in a week on concern overseas investors will keep pulling money from the nation’s assets as anti-government protests that began late October show no sign of abating. The central bank cut this year’s growth forecast to about 3 percent yesterday from a November prediction of 4 percent after unexpectedly holding its policy rate at 2.25 percent.
Switzerland’s franc strengthened against all of its 16 major peers after the nation raised the amount of capital banks must hold as a buffer to guard against mortgage writedowns.
The rand dropped 1.2 percent to the weakest level since October 2008. Canada’s dollar, the worst performer among the Group of 10 countries in the past six months, lost 0.1 percent to C$1.1098 per U.S. dollar, the weakest level since July 2009 on a closing basis. Australia’s dollar tumbled 0.9 percent to 87.69 U.S. cents.
Copper futures fell 1.6 percent, the most in more than two months, while zinc and lead dropped more than 1.8 percent. China is the biggest user of the metal and energy.
Gold climbed 1.9 percent to $1,262.50 an ounce, the highest settlement since Nov. 19, as the dollar fell.
U.S. natural gas rose 0.9 percent, headed for the biggest weekly gain since September 2012, with colder-than-usual weather forecast by Commodity Weather Group LLC for the eastern half of the U.S. through Feb. 1.
West Texas Intermediate crude climbed 0.6 percent to $97.32 a barrel, a three-week high, after a government report showed U.S. distillate-fuel stockpiles tumbled last week as cold weather bolstered demand.
The Energy Information Administration said stockpiles of distillate, a category that includes heating oil and diesel, fell 3.21 million barrels last week to 120.7 million. Crude inventories increased for the first time since November.