U.S. Stocks Stumble as Growth Anxiety Returns; Dollar, Oil Climb

Negative Interest Rates and the Global Financial System
  • Private payrolls data trails estimates while services expand
  • Turkish lira sinks amid concern political risk is returning

U.S. stocks slid to a three-week low as concern that global growth remains tepid sent equities lower from Europe to developing nations. Oil traded near $44 a barrel, while the dollar strengthened for a second day after falling to its lowest point in almost a year.

The S&P 500 Index fell for the fourth time in five days, with industrial shares slipping more than 1 percent as a rebound from lows reached in February faltered. Emerging-market equities sank, while the dollar rallied amid speculation on the timing of higher interest rates in the U.S. The Turkish lira plunged with the country’s prime minister said to plan to take the ruling party to an extraordinary congress, intensifying a power struggle within the government. U.S. oil erased declines in a late-in-the-day advance.

Nearly 90% in Bloomberg Survey See Fed Action Unlikely Next Month
Nearly 90% in Bloomberg Survey See Fed Action Unlikely Next Month

The rally in global equities stumbled into a second week as data from Europe to America failed to alleviate concern that economic growth is slowing and corporate profits will contract. At the same time, comments from Federal Reserve officials have raised the specter key rates will be increased even as economic reports paint a mixed picture on the state of the world’s largest economy. Friday’s monthly payrolls report will be key for investors seeking to determine the Fed’s potential policy path.

“Data has been a mixed bag today, starting with some disappointing employment figures that gave way slightly to some better-than-expected numbers,” said Chad Morganlander, a Florham Park, New Jersey-based money manager at Stifel, Nicolaus & Co., which oversees about $170 billion. “We expect the market to see some volatility going forward, with a downward bias as investors look for the next positive sign.”

U.S. reports on Wednesday showed service companies expanded last month at the fastest pace in four months, while fewer jobs were added than projected, according to private payrolls data. A report from Markit Economics indicated that European Central Bank policy is helping to sustain growth in the euro area economy, though the pace is “tepid” and inflation remains too slow.

Stocks

The S&P 500 declined 0.6 percent to 2,051.12 as of 4 p.m. New York time to the lowest level since April 11. The U.S. benchmark fell in the last session amid an uninspiring corporate earnings season.

Bank shares fell a second day, while energy and raw-material producers -- the two strongest groups as stocks rebounded from a February low -- lagged for a third session. Priceline Group Inc. sank 7.5 percent after its profit forecast disappointed, with executives citing, in part, the “fragility” of the global economy. Investors stuck with a recent preference for defensive shares, as utilities, consumer-staples and phone companies advanced.

Stan Druckenmiller, the billionaire investor with one of the best long-term track records in money management, said the bull market has “exhausted itself.” Druckenmiller, speaking at the Sohn Investment Conference in New York, said while he’s been critical of Fed policy for the last three years he expected it would lead to higher asset prices.

“I now feel the weight of the evidence has shifted the other way; higher valuations, three more years of unproductive corporate behavior, limits to further easing and excessive borrowing from the future suggest that the bull market is exhausting itself,” said Druckenmiller.

Investors are also monitoring the U.S. presidential campaign, with Donald Trump becoming the presumptive Republican nominee after his final two challengers exited the race.

The Stoxx Europe 600 Index was down 1.1 percent, with all industry groups falling. Anheuser-Busch InBev NV -- the world’s largest brewer -- slid 1.6 percent after reporting sales and profit growth that missed estimates. BHP Billiton Ltd. tumbled after it was named in a $44 billion law suit over a dam rupture in Brazil that caused deaths and severe environmental damage. 

The MSCI Emerging Markets Index of stocks fell 0.9 percent to the lowest level in almost a month.

Currencies

The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, added 0.5 percent as the currency climbed 0.4 percent to 107.01 yen and was little changed at $1.1487 per euro.

MSCI’s Emerging Markets Currency Index fell for a third day, sliding 0.6 percent to the lowest level since April 8. The lira extended declines, posting its steepest one-day drop versus the dollar since June, after a person familiar with the matter -- who asked not to be identified citing the sensitivity of the subject -- said Prime Minister Ahmet Davutoglu will take the ruling party to an extraordinary congress amid a widening rift over leadership with President Recep Tayyip Erdogan. 

Turkish assets have slumped on mounting signs of renewed political risk as Erdogan transforms the typically ceremonial role of president to the country’s power center. The Borsa Istanbul 100 Index of stocks dropped for a fourth day in its longest slump in four months.

Commodities

Oil rebounded, even after a U.S. government report showed crude inventories rose by 2.78 million barrels. Analysts surveyed ahead of the data release had anticipated a stock build of 750,000 barrels in the week ended April 29. West Texas Intermediate rose 0.3 percent to settle at $43.78 a barrel.

Gold slid a third day as the dollar’s rebound dimmed the metal’s appeal as an alternative investment. Bullion for immediate delivery retreated 0.5 percent to $1,279.68 an ounce. Copper fell 1.1 percent to $4,867 a metric ton in London, while zinc dropped 0.5 percent.

Bonds

U.S. government bonds rose after fluctuating earlier in the session. Yields on 10-year U.S. Treasuries fell two basis points, or 0.02 percentage point, to 1.78 percent. Treasuries have returned 3.2 percent this year as traders back away from bets on Fed monetary policy tightening.

German government bonds were little changed, with 10-year yields holding at 0.20 percent. Turkish notes fell with yields on debt due in a decade up 10 basis points to 9.33 percent.

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