Dollar Rallies on Housing Data, ECB Stimulus Outlook; Oil Sinks

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The dollar strengthened versus the euro amid a surge in U.S. housing data and after a European Central Bank official said policy makers will pull forward asset purchases. U.S. equity indexes were little changed near record highs, while crude oil slumped to a three-week low.

The Bloomberg Dollar Spot Index jumped 0.9 percent by 5 p.m. in New York to cap its biggest two-day surge since December 2011. Yields on 10-year Treasury notes climbed five basis points to 2.29 percent, while the Standard & Poor’s 500 Index slipped 0.1 percent from an all-time high. The Stoxx Europe 600 Index surged 1.7 percent, and Germany’s 10-year bond yield dropped five basis points. U.S. crude slid 3.7 percent.

New home construction in the U.S. jumped in April to the most since November 2007, indicating the industry regained its footing after a soft patch. The Federal Reserve releases minutes of its April meeting Wednesday as it debates the timing of higher interest rates. The ECB intends to increase its purchases of euro-area bonds ahead of a period of expected low liquidity in summer, executive board member Benoit Coeure said.

“When we get stronger news, we get concern about rising interest rates,” Bill Schultz, who oversees $1.2 billion as chief investment officer at McQueen, Ball & Associates in Bethlehem, Pennsylvania, said by phone. “We’re back to the guessing game of what happens with rates and whether economic data will be strong enough for the Fed to act.”

An improving labor market and mortgage costs close to multi-year lows are reviving residential construction, a sign that weakness seen earlier this year was probably due to harsh winter weather. The Fed has said a slowdown in first-quarter economic growth was probably temporary.

Yahoo Slumps

The Dow Jones Industrial Average climbed 0.1 percent after taking out its March 2 all-time high on Monday. The S&P 500 had closed three straight days at a record high before Tuesday’s slight pullback.

Home Depot Inc. slipped 1.7 percent even after reporting profit that surpassed forecasts, while Wal-Mart Stores Inc. tumbled 4.4 percent after the world’s largest retailer posted earnings that missed analysts’ estimates. Energy shares in the S&P 500 sank 1.2 percent as West Texas Intermediate crude slid to its lowest settlement price since April 28.

Shares of Yahoo! Inc. sank 7.6 percent amid reports the U.S. Internal Revenue Service is considering a rule change that might complicate the company’s efforts to exit its stake in Chinese e-commerce retailer Alibaba Group Holding Ltd.

Rocket Ship

Ten-year Treasury yields, which rose nine basis points Monday, the most in a week, extended the advance as investors weighed the Fed’s next move. The central bank will probably boost borrowing costs in about eight months, compared with about six months in March, a Morgan Stanley index indicated.

“That’s a rocket ship of housing starts,” said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia, which manages $61 billion in assets. “It’s definitely a good sign -- how good depends on how much it’s sustained. It’s perceived as economically positive and bonds unfriendly.”

The Bloomberg dollar gauge has rallied 1.8 percent in the past two days, more than erasing its decline from the previous week. The euro tumbled the most in two months versus the greenback, sliding 1.5 percent to $1.1150.

Amid the focus on the timing for U.S. rate increases, the comments from the ECB’s Coeure are a reminder that central banks in Europe and Japan remain active with monetary stimulus to support economic growth.

Car Stocks

“This will push the euro down again, support growth, and bring buyers back to Europe,” said Michael Woischneck, who helps manage about $6.9 billion at Lampe Asset Management GmbH in Dusseldorf, Germany. “That’s an environment where exporters, like carmakers, should benefit once more.”

The Stoxx 600 jumped as all but one of its 19 main groups advanced. Auto shares led gains, with Volkswagen AG and Renault SA rising at least 4.8 percent, after a report showed European car sales increased for a 20th straight month in April.

France’s CAC 40 Index and Germany’s DAX Index added more than 2.1 percent and Greece’s ASE Index climbed 2.6 percent.

Germany and France gave Greece until the end of May to reach a deal on its aid program, urging faster talks to end the standoff over the country’s financing.

Italy’s 10-year yields declined eight basis points, or 0.08 percentage point, to 1.81 percent Tuesday and Spain’s also dropped eight basis points, to 1.75 percent. Concern that rates on European bonds had fallen too far sparked a rout that erased $400 billion from fixed-income markets over the past three weeks.

Bond Supportive

“The ECB is signaling its determination to maintain the bond purchase program and accelerate the process before the summer due to liquidity concerns,” said Nick Stamenkovic, a fixed income strategist at RIA Capital Markets in Edinburgh. “This is supportive for European government bonds.”

WTI crude for June delivery, which expires Tuesday, dropped a fifth day, to $57.26 a barrel. Brent, the international oil benchmark, declined 3.4 percent to $64.02. Goldman Sachs Group Inc. said a continuation of the surplus in the commodity would send U.S. prices back down to $45 a barrel by October.

The Bloomberg Commodity Index dropped 2.2 percent, the most since Feb. 4. Gold slid 1.7 percent to settle at $1,206.70 an ounce, falling for the first time in six days. Silver dropped 2 percent, while copper fell 2.3 percent.

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