U.S. and European shares fell, paring weekly gains, as geopolitical tensions escalated and investors weighed comments from central bank leaders for clues to monetary policy. The dollar reached an 11-month high versus the euro while gold snapped a five-day losing streak.
The S&P 500 dropped 0.2 percent to 1,988.4 at 4 p.m. in New York after yesterday closing at an all-time high. The benchmark index rallied 1.7 percent this week, the most since April, amid bets the Federal Reserve will continue stimulating the economy even as growth strengthens. The Stoxx Europe 600 Index fell 0.2 percent, trimming its best weekly gain since February. The dollar gained against most major peers.
NATO said it saw an “alarming build-up” of Russian troops on the border, while Ukraine said the arrival of what Russia called humanitarian aid amounted to an invasion. President Barack Obama will consider airstrikes in Syria in the battle against Islamic State terrorists, deputy national security adviser Ben Rhodes said. Federal Reserve Chair Janet Yellen said slack remains in the labor market while European Central Bank chief Mario Draghi said policy makers are ready to add more stimulus.
“The news out of Ukraine took a little bit more of the headlines today,” Joe Bell, senior equity analyst at Cincinnati-based Schaeffer’s Investment Research Inc., said in a phone interview. “We see bad news ahead of the weekend after a week of gains, and we see that investors are reacting by taking profits off the table.”
Tensions are spiking between Russia and Ukraine, which has been on the offensive against pro-Russian separatists in the country’s easternmost regions. Ukraine and its allies blame Russia for stoking the insurgency, while Russia denies involvement. More than 150 trucks carrying humanitarian aid from Russia crossed into Ukraine’s border today. Ukraine said the convoy entered without its consent.
The escalation sent the dollar as high as $1.3221 per euro, the strongest since September. The greenback added 0.1 percent to 103.95 yen after advancing to 104.19, the highest since Jan. 23. The euro fell 0.2 percent to 137.68 yen.
The Stoxx Europe 600 Index pared a weekly gain to 2.1 percent, still the best advance since February. The gauge rallied earlier this week as investors bet that industrial slowdown in the euro area will increase pressure on the ECB to boost stimulus.
“We stand ready to adjust our policy stance further,” Draghi said today in the text of a speech at the Federal Reserve Bank of Kansas City’s economics conference in Jackson Hole, Wyoming. “It would be helpful for the overall stance of policy if fiscal policy could play a greater role alongside monetary policy, and I believe there is scope for this.”
The S&P 500 yesterday capped a four-day rally that was its longest in two months, as investors speculated the Fed won’t raise rates sooner than anticipated even as economic growth accelerates.
“The economy has made considerable progress in recovering from the largest and most sustained loss of employment” since the Great Depression, Yellen said today. Even so, she underscored the Federal Open Market Committee statement last month that “underutilization of labor resources still remains significant.”
Minutes of the July meeting released Aug. 20 showed some Fed officials “were increasingly uncomfortable” with the Fed’s plan to keep rates near zero for a “considerable time” after monthly bond purchases end. The bank is on pace to wind down that program in October.
Most Fed officials forecast they will need to raise the benchmark rate sometime next year after holding it near zero since December 2008. The median estimate of policy makers released after their June meeting shows they project a rise to 1.13 percent at the end of 2015 and to 2.5 percent a year later.
Recent data from housing to hiring has intensified the debate among officials over when to tighten monetary policy. Fed Bank of St. Louis President James Bullard said a boost may occur earlier than officials previously expected, while Atlanta Fed President Dennis Lockhart urged more patience. European Central Bank President Mario Draghi also speaks.
Bullard said improvement in the labor markets means “the evidence is leaning toward an earlier increase than would have been in the works earlier this year.” Atlanta’s Lockhart warned of the risk of “moving prematurely and snuffing out some progress.” The Fed has held its benchmark rate close to zero since December 2008.
European Central Bank President Mario Draghi will speak later today in Wyoming, amid mounting speculation European policy makers will enact more stimulus. A report yesterday showed Markit’s euro-area manufacturing and services indexes dropped in August. In June, the ECB introduced targeted long-term refinancing operations to improve bank lending in the non-financial private sector.
West Texas Intermediate crude for October delivery dropped 0.3 percent to $93.65 a barrel in New York. WTI capped a fifth weekly decline, the longest losing streak in nine months, on concern refineries will reduce demand for crude as the end of summer driving season approaches.
Gold futures advanced 0.4 percent to $1,280.20, the first gain in more than a week.