Treasuries fell as service-industry growth fueled speculation the Federal Reserve will taper stimulus earlier than expected, while oil slid on forecasts for growth in inventories. U.S. shares dropped and European stocks retreated as the growth outlook for the euro region was trimmed.
Yields on 10-year U.S. notes rose six basis points to 2.66 percent by 4 p.m. in New York, the highest level in more than two weeks. The Standard & Poor’s 500 Index closed down 0.3 percent after losing as much as 0.7 percent. The Stoxx Europe 600 Index fell 0.2 percent, retreating from a five-year high, while Spanish and Italian 10-year yields jumped at least six basis points. Oil fell to a five-month low as the S&P GSCI Index of commodities sank to its weakest close since April.
The U.S. Institute for Supply Management’s gauge of service industries climbed more than economists predicted, stoking concern that the economy is faring well enough for the Fed to consider reducing asset purchases earlier than analysts anticipated. Fed policy makers last week signaled diminishing concern over higher borrowing costs as they maintained their $85 billion-a-month bond buying program and sought more evidence of sustained growth before tapering stimulus.
“Today’s data was generally stronger than anticipated and is suggesting that the economy may have withstood the shutdown better than anticipated,” said Christopher Sullivan, who oversees $2.2 billion as chief investment officer at United Nations Federal Credit Union in New York, referring to the partial closing of the U.S. government last month. “There doesn’t seem to be any flight to bonds anywhere in the world as a haven. People are stepping back, gauging where we are economically, and awaiting more robust data.”
Thirty-year U.S. bond yields jumped seven basis points, or 0.07 percentage point, to 3.76 percent, the highest level since Oct. 15, while two-year rates were little changed 0.30 percent.
Eight of the 10 main S&P 500 industry groups fell today while AT&T Inc., Verizon Communications Inc. and International Business Machines Corp. led losses in the Dow Jones Industrial Average. Delphi Automotive Plc lost 5.2 after narrowing its profit projection. Tenet Healthcare Corp. tumbled 8.8 percent as the hospital chain’s earnings forecast missed analysts’ estimates. GT Advanced Technologies Inc. surged 21 percent after signing an agreement to supply equipment to Apple Inc.
The S&P 500 has rallied almost 24 percent in 2013, challenging 2009 for its best yearly gain in a decade. The benchmark index for U.S. stocks traded at about 16.8 times member company reported earnings at its last record reached Oct. 29, the highest valuation in more than three years. The Stoxx 600 is up 15 percent this year and the MSCI All-Country World Index has gained 16 percent.
“A lot of people are nervous by how strong the market has been this year,” Patrick Kaser, a money manager at Brandywine Global Investment Management in Philadelphia, said in a phone interview. His firm oversees about $45 billion. “People are looking at the big gains and saying ‘this is overdone.’ There is still skepticism about how the economy is really doing and whether these gains are from artificial factors, like the Fed, or from real strength in company results.”
The ISM’s non-manufacturing index increased to 55.4 in October from 54.4 the prior month. Economists surveyed by Bloomberg predicted a drop to 54. Readings greater than 50 signal expansion.
A government report in two days is forecast to show the U.S. economy grew at a 2 percent annualized rate in the third quarter, compared with a 2.5 percent increase in the previous three months. Economists predict a report the next day will show payrolls climbed by 120,000 in October and the unemployment rate increased to 7.3 percent from 7.2 percent in the previous month, according to a separate survey.
About three shares declined for every two that gained in the Stoxx 600. RSA Insurance Group Plc tumbled 6.3 percent as the U.K.’s biggest non-life insurer by market value said it will miss its profitability target after last week’s European windstorms. Bayerische Motoren Werke AG, the world’s largest maker of luxury vehicles, fell 2.9 percent after profit declined. Beiersdorf AG jumped 5.3 percent after the maker of Nivea hand cream increased its sales forecast.
The euro area’s economy will expand 1.1 percent in 2014, less than the 1.2 percent forecast in May, and unemployment will be 12.2 percent next year, above the 12.1 percent predicted previously, the European Commission said.
All except three of 70 economists in a survey predict the European Central Bank will keep its main refinancing rate at 0.5 percent Nov. 7. Bank of America Corp., Royal Bank of Scotland Group Plc and UBS AG predict a cut to 0.25 percent.
German government bonds declined, with the 10-year bund yield climbing seven basis points to 1.74 percent. The cost of insuring against losses on corporate bonds rose from a 3 1/2-year low. The Markit iTraxx Europe Index of credit-default swaps on 125 investment-grade companies increased 1.5 basis point to 84.92 basis points.
The MSCI Emerging Markets Index fell for a fourth day, the longest losing streak in a month, sliding 1.1 percent. India’s S&P BSE Sensex Index sank 1.3 percent, dropping from a record high as trading resumed following a holiday. The Hang Seng China Enterprises Index retreated 0.5 percent, Taiwan’s Taiex declined 1.1 percent, while South Korea’s Kospi Index lost 0.6 percent. Brazil’s Ibovespa dropped 1.1 percent.
Thailand’s SET Index advanced 2 percent, the most in six weeks, on speculation the nation’s Senate will reject a proposed amnesty law for political offenses that has spurred protests.
The yen appreciated against 12 of 16 major peers, climbing as much as 0.7 percent to 132.37 per euro, its strongest level since Oct. 10, as traders weighed prospects for additional monetary stimulus from the ECB. The euro weakened 0.3 percent to $1.3473.
The pound rallied against all 16 major counterparts as a gauge of U.K. services unexpectedly rose to the highest level in 16 years. Sterling rose 0.5 percent to $1.6044 and gained 0.8 percent per euro.
Crude oil, aluminum, wheat and soybeans lost at least 0.5 percent to lead declines in 20 of 24 commodities tracked by the S&P GSCI Index.
West Texas Intermediate crude dropped to the lowest level since June on speculation inventories increased for a seventh week in the U.S., the world’s biggest oil-consuming country.
An Energy Information Administration report tomorrow will probably show crude supplies rose 2.15 million barrels last week, according to the median of 10 analyst estimates in a Bloomberg survey. U.S. crude output surged to a 24-year high in October while refineries idled units for maintenance, reducing crude demand.