U.S. Shares Advance While Dollar Sinks as Yellen Conveys Caution

Janet Yellen: Reading on U.S. Economy Somewhat Mixed
  • Fed Chair signals key rates likely to stay lower for longer
  • Treasuries jump with dollar set for worst month since 2011

U.S. stocks rallied with Treasuries, while the dollar fell after Federal Reserve Chair Janet Yellen signaled the central bank remains wary of raising interest rates amid threats to American growth from a slowing global economy.

The Standard & Poor’s 500 Index jumped the most in two weeks to erase losses for the year as Yellen indicated deteriorating world growth warrants a slow approach to tightening monetary policy. The Bloomberg Dollar Spot Index headed for its worst month in five years as the likelihood of lower rates for longer damped the appeal of the greenback. Treasuries rose, sending yields on 10-year notes down to 1.81 percent. The Ibovespa extended its best monthly advance since 1999 amid speculation Brazil’s president will be impeached.

“Yellen reiterated that the Fed will proceed cautiously, and the market is finding comfort in that,” said Richard Sichel, chief investment officer at Philadelphia Trust Co., which oversees $2 billion. “There were no surprises, and surprises are what normally sends the market going the wrong way. Investors can now start to key in on some economic numbers, and then begin to look ahead to earnings.”

The Fed Chair’s comments, made during an appearance at the Economic Club of New York, seemed to indicate that policy makers were unlikely to raise rates next month, spurring traders to push odds of an April hike to zero in the futures market. Financial markets have been hanging on the outlook for U.S. borrowing costs since the Fed reduced the expected pace of increases this year to two from four at its last meeting. Since then, a chorus of central bank officials have emphasized that every meeting remains in play.

“Yellen just took the edge off all the other comments made in the past week or so,” said Joe “JJ” Kinahan, chief strategist at TD Ameritrade Holding Corp. “All she’s doing is reinforcing that they’re not going to do something that’s unexpected. She reassured us that they’re going to follow the script.”

Stocks

The S&P 500 climbed 0.9 percent to 2,055.01 as of 4 p.m. in New York, its highest level since Dec. 30. The U.S. benchmark has surged 6.4 percent in March, headed for its first monthly gain of the year. The Nasdaq Composite Index gained 1.7 percent as small caps surged, sending the Russell 200 Index up 2.7 percent, the most since January.

“The market wants to go higher, and because it wants to go higher, when it gets a pat on the back from the Fed Chair it accomplishes that objective,” said David Sowerby, a portfolio manager at Loomis Sayles & Co. said by phone. “Yellen is communicating that the Fed is still one of the market’s better friends and the cost of borrowing and the cost of capital will stay low.”

S&P 500 technology shares rose 1.6 percent after Yellen’s comments, driving gains as Apple Inc. surged 2.4 percent and Netflix Inc. jumped 2.9 percent. Financial firms were the worst performer among 10 S&P 500 groups, rising 0.2 percent as the prospect of lower rates for longer hampers the ability of banks to make money on loans.

The Stoxx Europe 600 Index climbed 0.5 percent, snapping its longest losing streak in more than a month as markets in the region resumed after the Easter holiday.

Futures on Asian equity indexes were mixed, with contracts on Japan’s Nikkei 225 Stock Average losing 0.7 percent in Osaka as the yen gained versus the dollar. Futures on Australian and South Korean stocks climbed at least 0.6 percent, while those on Hong Kong benchmarks retreated.

The MSCI Asia Pacific Index fell 0.3 percent on Tuesday.

Currencies

The U.S. currency dropped 0.9 percent to $1.1291 per euro and fell 0.7 percent to 112.70 yen, sending Bloomberg’s dollar gauge, which tracks the greenback against 10 major peers, toward a March drop of 3.4 percent, its steepest monthly loss since April 2011.

Traders reduced bets on a Fed rate increase in April from 10 percent a week ago, and lowered the probability of a hike in June to 26 percent from 46 percent, based on the assumption that the effective fed funds rate will trade at the middle of the new Fed Open Market Committee target range after the next increase.

“We were prepped for a dovish Yellen, but somehow she still managed to exceed our own expectations,” said Bipan Rai, executive director of foreign-exchange strategy in Toronto at Canadian Imperial Bank of Commerce’s CIBC World Markets unit.

Bonds

U.S. debt extended gains after Yellen made a case for running the economy hot, saying the Fed “would still have considerable scope” to ease policy if rates hit zero again. Treasuries had gained earlier in the session as investors sought haven assets after the latest decline in oil prices spurred concern about the health of the global economy.

Yields on 10-year Treasury notes slipped eight basis points, or 0.08 percentage point, to their lowest level since February. Rates on two-year Treasuries, the securities most sensitive to Fed policy, also fell eight basis points, to 0.79 percent.

Emerging Markets

The MSCI Emerging Markets Index rose 0.2 percent as Yellen’s case for slower rates eased concern that a strengthening dollar will reduce demand for riskier assets. A gauge of 20 developing-nation exchange rates jumped 0.4 percent after reversing a decline of as much as 0.3 percent.

Equities in Brazil climbed 0.6 percent to be headed for a March advance of 20 percent after the country’s biggest political party formally left the governing coalition, delivering a major blow to President Dilma Rousseff just weeks before she faces an impeachment vote.

Commodities

West Texas Intermediate crude fell 2.8 percent to settle at $38.28 a barrel in New York, after sliding 5 percent over the past three sessions amid ongoing concern over a global glut in the commodity. Weekly U.S. government data is forecast to show increasing crude stockpiles kept supplies at the highest level in more than eight decades.

After roiling financial markets as it slid in the first six weeks of the year, crude has since recovered and is on track for its first back-to-back monthly gains since May 2015. Recent advances aren’t fully grounded in improved fundamentals, and commodities including oil and copper are at risk of steep declines as according to Barclays Plc.

Gold futures erased early losses to rise 1.3 percent to $1,237.50 an ounce in New York on Yellen’s commentary. Copper declined for a third session, its longest losing streak in more than a month, as data signaled weaker Chinese demand and Barclays said commodity prices could tumble.

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