Dollar Weakens as Global Stocks Cap Best Month in Four Years

  • PBOC, BOJ actions send U.S. currency lower for October
  • S&P 500 slips with Europe equities, paring monthly rallies

The foreign-exchange market grabbed the spotlight on the final day of what’s been the best month for global equities in four years.

The yen rallied after the Bank of Japan refrained from expanding a record stimulus program, China’s yuan advanced on further steps to increase convertibility and the dollar erased its monthly gain against major peers. The Standard & Poor’s 500 Index slipped as it pared its October rally to 8.3 percent, while the the Stoxx Europe 600 Index trimmed is best monthly advance since July 2009.

“We have had some big moves in currencies this week” and the dollar’s decline is “reflected pretty much across the board,” said Michael Sneyd, a foreign-exchange strategist at BNP Paribas SA in London. “We remain positive on the dollar, however, we are cautious over the next couple of weeks because we think data from the U.S. is at best going to be mixed.”

Central banks have dominated markets this month, with a weak U.S. jobs report jolting equities out of a summer swoon and sinking the dollar on speculation the Federal Reserve would keep interest rates pinned near zero into 2016. Persistent signs of weak global growth prompted the European Central Bank to hint at potential extra stimulus, while China unexpectedly cut its lending rate.

Currencies

The dollar declined after U.S. inflation and consumer spending figures trailed estimates, damping the outlook for the economy. The Bloomberg Dollar Spot Index weakened 0.4 percent at 4 p.m. in New York, leaving it 0.3 percent lower for the month. The euro climbed 0.2 percent to $1.0993.

Japan’s currency strengthened versus the dollar after Friday’s decision to continue expanding the monetary base by 80 trillion yen ($664 billion) a year. The yen added 0.6 percent to 120.54 per dollar. It’s lost about 10 percent of its value versus the greenback since the BOJ increased stimulus a year ago, with most of that occurring before the end of 2014.

The yuan climbed 0.6 percent in onshore trading, and 0.3 percent offshore. The People’s Bank of China said it will consider a trial program in the Shanghai free trade zone allowing domestic individual investors to directly buy overseas assets.

Stocks

The S&P 500 slipped 0.4 percent to 2,079.36, trimming the best monthly advance since October 2011. The gauge has rallied 11 percent since its Aug. 25 low and trades above its average price for the past 200 days.

“It’s not like the market is falling out of bed, but when you combine that with how much we’ve been up lately, it gives us an excuse to pull back,” said Matt Maley, an equity strategist at Miller Tabak & Co. in New York. “We just had this huge rally -- pulling back is normal and healthy.”

Valeant Pharmaceuticals International Inc. lost 16 percent as the drugmaker said it will terminate a relationship with Philidor Rx Services after Bloomberg News reported that the closely associated pharmacy had altered doctors’ prescriptions to wring more reimbursements out of U.S. health insurers.

The Stoxx 600 fell 0.1 percent amid mixed corporate results. It still rose 8 percent in October, the most since 2009, after President Mario Draghi said the European Central Bank will consider additional easing in December. The gauge is rebounding from a quarterly rout, led by gains in carmakers, miners and energy producers -- the groups most battered in the selloff.

The MSCI All-Country World Index ended Friday little changed. The gauge surged 7.7 percent in October. Japan’s Topix capped its biggest monthly gain in more than two years. The Nikkei 225 Stock Average closed at its highest level since August.

After a strong start to October, Asian stock gains have faltered into the end of the month
After a strong start to October, Asian stock gains have faltered into the end of the month

Emerging Markets

A gauge of 20 emerging-market currencies advanced for the first time in six days. Russia’s ruble rose 0.4 percent against the dollar after the central bank left interest rates unchanged for a second month.

The MSCI Emerging Markets Index rose 0.1 percent, trimming its first weekly decline in October. The gauge rose 7 percent in October, the most since April.

Commodities

The Bloomberg Commodity Index advanced 0.7 percent to trim a fourth monthly retreat to 0.5 percent. Crude ended below $50 a barrel for a fourth straight month amid a global glut that’s showing no signs of relief. West Texas Intermediate crude futures ended the month on a three-day winning streak, rising 1.4 percent Friday to settle at $46.70 a barrel in New York.

Commodities have suffered on excess supply and China’s economic slowdown, with a London metals index set for a sixth monthly decline, and energy companies posting more than $19 billion of writedowns in a week because of low prices.

Royal Dutch Shell Plc announced its worst loss in 16 years on Thursday, including $8.2 billion in impairments. Chevron Corp. said it’s cutting about 10 percent of its workforce and scaled back its long-term production target amid the worst oil-market slump since the 1980s. Exxon Mobil Corp. posted higher-than-expected profit as soaring margins on processing oil into fuels blunted the impact of collapsing crude markets.

Gold posted the biggest weekly decline since August amid renewed concern that the Federal Reserve will raise interest rates in December. Futures slipped 0.5 percent Friday to settle at $1,141.40 an ounce in New York, after touching $1,138.40, the lowest since Oct. 9. Prices dropped 1.8 percent this week, the most since Aug. 28.

Bonds

U.S. government bonds rose, following a two-day decline. The 10-year yield dropped two basis points to 2.15 percent. Germany’s 10-year yield fell one basis point to 0.52 percent.

Treasuries still capped the worst week since August, with two-year note yields surging after the Fed hinted it may raise rates this year.

Companies from Microsoft Corp. to American Express Co. and Norfolk Southern Corp. rushed back to the bond market to lock in cheap borrowing costs before the central bank ends its unprecedented zero-rate era. Fed Chair Janet Yellen and policy makers signaled this week they remain prepared to raise their key rate as soon as their next meeting starting Dec. 15, pushing the perceived odds of a rate increase to 50 percent.

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