U.S. stocks rose, reversing yesterday’s decline, as signs the economy is strengthening overshadowed concern interest rates may be increased in the middle of next year. Emerging-market equities fell with gold, crude oil and coffee as the dollar climbed.
The Standard & Poor’s 500 Index (SPX) added 0.6 percent to 1872.01. Australian and South Korean index futures climbed, while Nikkei 225 Stock Average futures dropped in Chicago. The MSCI Emerging Markets Index lost 1 percent as Chinese shares in Hong Kong entered a bear market. The dollar gained against 14 of its 16 major peers. Gold futures capped the steepest four-day slump since November as oil slid 0.9 percent. Copper retreated 2 percent. Forecasts for rain in Brazil sank coffee futures.
The S&P 500 erased early losses as an index of U.S. leading indicators rose in February, a sign the economy will rebound after its weather-induced slowdown. Data also showed fewer Americans are seeking jobless benefits and factory output picked up in some areas. Federal Reserve Chair Janet Yellen said yesterday key rates may be raised as soon as six months after the Fed ends its bond-buying program. The U.S. expanded sanctions on Russian officials and imposed curbs on a bank.
“The market has digested and even discounted a bit what Yellen said, and put things into perspective,” Stephen Carl, principal and head equity trader at New York-based Williams Capital Group LP, said in a phone interview. “We have to see how the economy continues to move along. People are back focusing on signs of economic growth.”
The S&P 500 slid 0.6 percent and two-year Treasury yields jumped the most since 2011 yesterday after Yellen said the central bank’s stimulus program could end this fall, with benchmark interest rates probably raised about six months later. The Fed had previously said it would not boost rates for a considerable period, without specifying a time frame.
Quarterly Fed forecasts also showed more officials predicting that the benchmark rate, now close to zero, will rise to at least 1 percent by the end of 2015 and 2.25 percent a year later. Money market rates show traders see a 62 percent chance of an interest-rate increase by June 2015, up from 57 percent two days ago.
The central bank said it would trim its monthly bond purchases by $10 billion to $55 billion, the third reduction in the stimulus program. Three rounds of Fed stimulus and near-zero interest rates have helped boost the S&P 500 as much as 178 percent from a 12-year low as U.S. stocks enter the sixth year of a bull market. The benchmark U.S. gauge is now within six points of the record close reached March 7.
Yellen also said harsh winter weather was a significant reason for weakness this year in economic data from housing to jobs.
Among U.S. reports today, the Conference Board’s gauge of the economic outlook for the next three to six months climbed 0.5 percent, the biggest gain since November.
The number of Americans filing applications for unemployment benefits held last week near the lowest level in almost four months, a sign the labor market continues to strengthen. The Philadelphia Fed’s manufacturing gauge rose to 9.0 in March from minus 6.3 the prior month, while purchases of previously owned homes declined in February to the lowest level since July 2012.
Futures on Australia’s S&P/ASX 200 Index climbed 0.4 percent, with the measure headed for a weekly decline of 0.7 percent. Contracts on the Kospi Index in Seoul added 0.4 percent while Hang Seng and Hang Seng China Enterprises (HSCEI) Index futures were little changed. The Enterprises gauge, a measure of mainland Chinese stocks listed in Hong Kong, fell 1.7 percent yesterday to bring its drop from a December high to 20 percent, the common definition of a bear market.
Yields on 10-year Treasuries were little changed at 2.78 percent after surging 10 basis points, or 0.10 percentage point, yesterday in New York. The gap between yields on 10- and 30-year Treasuries narrowed to the least since 2010 after the Fed commentary on rates.
Two-year notes were also little changed at 0.42 percent after yesterday’s jump. Ten-year notes have this week erased erased almost all of last week’s gains, when yields slid 13 basis points, the most since January amid the tussle between Ukraine and Russia over the Black sea region of Crimea.
“Inflation is low and now you have a Fed telling you they may raise rates earlier than the market had thought,” said Ray Remy, head of fixed income in New York at Daiwa Capital Markets America Inc., one of 22 primary dealers that trade with the Fed. “That’s generally good for bonds. If you believe the statement moved up the first rate hike, 30-years will outperform 10-years.”
European and Asian bonds slid, with Germany’s 10-year yields jumping five basis points to 1.65 percent, their biggest increase since Feb. 28. Britain’s 10-year yield rose seven basis points to 2.77 percent and Australian 10-year government bond yields climbed six basis points to 4.13 percent.
The Micex Index added 0.1 percent in Moscow, reversing earlier declines of as much as 1.2 percent as the ruble lost 0.7 percent against the dollar. President Barack Obama announced that the U.S. is imposing sanctions on a wider swathe of senior Russian officials. He also signed an executive order authorizing, though not implementing, economic sanctions affecting parts of the Russian economy, which he didn’t specify.
Germany and France said the European Union won’t rush to impose economic sanctions on Russia for the annexation of Crimea. Obama is set to travel next week to Europe, where he’ll consult with EU officials about coordinated action.
The Stoxx Europe 600 Index closed little changed, erasing losses of as much as 1 percent in the final minutes of trading. GlaxoSmithKline Plc dropped 1.6 percent after saying its experimental lung-cancer drug failed to meet objectives in a clinical study.
The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, rose 0.1 percent after jumping 0.8 percent yesterday, its biggest one-day advance since August. The U.S. currency appreciated 0.4 percent to $1.3779 per euro and gained 0.1 percent to 102.39 yen.
The Bloomberg-JPMorgan Asia Dollar Index (ADXY), which tracks the region’s 10 major currencies excluding the yen, fell as much as 0.5 percent to the lowest level since Sept. 5. The U.S. currency strengthened 1.2 percent against Indonesia’s rupiah.
China’s yuan sank to a one-year low versus the greenback amid deepening concern the world’s second-largest economy is slowing. The Shanghai Composite Index fell 1.4 percent to its lowest level since Jan. 20.
The People’s Bank of China lowered the daily fixing for the yuan today to the weakest level since Nov. 6. The yuan has dropped 1.3 percent this month, after February’s record 1.4 percent slide. Goldman Sachs Group Inc. cut its first-quarter growth outlook for Asia’s largest economy to 5 percent from 6.7 percent, citing disappointing trade and consumption data.
Copper futures declined 2 percent as the prospect of higher U.S. borrowing costs next year spurred concern that the economy will slow and metals demand will wane.
Gold futures dropped 0.8 percent to $1,330.70 an ounce, capping a 3.5 percent loss over four days. Bullion, which slid the most since 1981 last year as some investors lost faith in the metal as a store of value, has rebounded 15 percent in 2014 through last week amid the tensions in Ukraine and concern over China’s economy. Silver futures slipped 1.9 percent today.
West Texas Intermediate crude fell 0.9 percent to $99.43 a barrel, the first decline in three days, as the dollar strengthened and after a report showed U.S. oil stockpiles increased for a ninth week. U.S. natural gas futures slumped 2.6 percent to a nine-week low after a government report showed inventories dropped less than forecast last week.
Arabica coffee for May delivery tumbled 6.1 percent in New York to $1.7415 a pound, bringing its two-session loss to 9.1 percent, the most since 2010. In the next five days, a cold front will bring more rain to Brazil’s Parana and Sao Paulo areas, with rain expected at the weekend in Minas Gerais, the top coffee producing state.