U.S. Stocks Halt Rally as Dollar Weakens, Crude Oil Advances

Is the Dollar Bull Run Over?
  • Greenback is in longest losing streak in seven months
  • S&P 500 clings to gain for year after three-day rally

U.S. stocks halted a three-day advance, while the dollar had its longest slide since April and oil capped its biggest weekly advance in four months.

The Standard & Poor’s 500 Index slipped after a 2.9 percent surge over three days, with trading volumes 40 percent below the 30-day average in a holiday-shortened session. The Bloomberg Dollar Spot Index fell a fifth day, with the U.S. currency losing ground against all its Group-of-10 peers. The MSCI Emerging Markets Index climbed for a fourth day, the longest run in more than a month, and gold climbed.

The dollar has cut its annual gain to less than 9 percent against a basket of trading currencies on bets the pace of future U.S. interest rate increases will be slow. Falling commodity prices have depressed the global outlook for inflation, threatening to keep consumer prices from rising at levels targeted by central banks in Europe and America. A rally in energy shares Wednesday spurred gains in U.S. equities and erased the Standard & Poor’s 500 Index’s loss for the year.

“We have a short day and people are preoccupied with other things, so barring any unforeseen events, you’re not going to see much movement,” said Richard Sichel, chief investment officer at Philadelphia Trust Co., which oversees $2 billion. “Energy was getting a little boost for a little while, and now those stocks are moving back down again.”

Stocks

The S&P 500 fell 0.2 percent at 1 p.m. in New York, with energy shares leading losses after the group rallied 5.6 percent in three days. The broader index is flat for the year after capping its best week since mid-November. The U.S. stock markets closed at 1 p.m. Thursday and will remain closed Friday.

Data today showed filings for unemployment benefits in the U.S. decreased to a four-week low, indicating a still-solid labor market approaching the new year.

The Stoxx 600 was also little changed, capping a second weekly advance. The index climbed 1.4 percent since Dec. 18 after a 2.7 percent jump on Wednesday.

Markets in the U.K., France and the Netherlands are among those closing early on Thursday, while Germany, Switzerland and Italy are shut all day. Most will reopen on Dec. 28, except Britain, whose shares will resume trading the following day.

Currencies

The Bloomberg gauge of the dollar is on course for a 0.8 percent drop this month, the most since June. The euro gained 0.4 percent versus the greenback on Thursday, while the yen advanced 0.5 percent.

While the currency has slid this month, it will strengthen against all its Group-of-10 peers except the pound and Canadian dollar in the first quarter, according to analysts’ forecasts.

“What’s supporting the dollar’s outlook is the economic growth outlook for the U.S. that’s behind monetary policy divergence,” said Masashi Murata, a vice president at Brown Brothers Harriman & Co. in Tokyo. “The big premise for forecasting currencies next year is the dollar’s uptrend. It will be difficult for any G-10 currency to beat the dollar.”

A gauge tracking 20 emerging-market currencies advanced for a fifth day. The Russian ruble fell 1.1 percent, after rallying more than 2 percent on Wednesday.

Emerging Markets

The MSCI Emerging Markets Index capped the longest winning streak since Nov. 4, as energy companies extended a rebound. Equity gauges in Thailand, Egypt and South Africa rose at least 0.6 percent.

“It’s a relief rally due to some year-end flows and portfolio rebalancings, helped by some signs of stabilization in the commodity markets,” said Giorgio Bertoli, a fund manager at Banca del Sempione in Lugano. “To sustain this advance into the next year we need better macroeconomics data, especially in China, and better price dynamics on commodity markets.”

The emerging-markets index has fallen 16 percent this year, set for the worst annual performance since 2011, and is valued at 11.2 times the projected 12-month earnings of its members. The MSCI World Index’s multiple is 15.9 after it dropped 2.1 percent in 2015.

Commodities

Oil in New York capped its largest weekly gain in four months as U.S. inventories declined and the number of drilling rigs fell. Stockpiles slid 5.88 million barrels last week, the most since June, government data showed. A 1.2 million-barrel gain was projected in a Bloomberg survey. Gulf Coast refiners typically curb deliveries at the end of the year to reduce local taxes. The number of active oil rigs in the U.S. fell by 3 to 538 this week, according to Baker Hughes Inc.

West Texas Intermediate crude futures for February delivery increased 1.6 percent to settle at $38.10 a barrel on the New York Mercantile Exchange.

Gold futures advanced 0.7 percent to settle at $1,075.90 an ounce as a drop in the dollar boosted the appeal of the metal as an alternative asset. Still, gold is poised to fall for a sixth quarter, the longest streak of declines since 1976, according to Bloomberg data.

Bonds

U.S. 10-year Treasury yields slipped one basis point to 2.24 percent. U.S. government securities have returned 0.9 percent this year, based on Bloomberg World Bond Indexes, even after the Federal Reserve raised interest rates last week amid signs of uneven economic growth.

Trading in the Treasuries market closed at 2 p.m. New York time Thursday, while bond markets in the euro region never opened.

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