U.S. Equities Little Changed as Oil Drops Before Fed; Yen Surges

Markets Await Central Bank Stimulus Decisions
  • Yen posts best day since Brexit vote on stimulus talk
  • Apple jumps after market on earnings while Twitter sinks

Earnings from McDonald’s Corp. to Caterpillar Inc. tugged U.S. stocks in opposite directions, leaving benchmark indexes little changed as investors turned attention to Wednesday’s Federal Reserve interest rate review. The yen jumped, while oil slipped to a three-month low.

The S&P 500 Index rose less than one point, narrowly avoiding its first two-day slide since the Brexit vote a month ago amid support for haven assets. Yields on 10-year Treasuries fell one basis point as an auction of U.S. Treasury notes drew the feeblest demand in years, while the dollar weakened as the Fed started its two-day meeting. The yen soared more than 1 percent as Japanese Finance Minister Taro Aso damped speculation of an immediate boost in government support measures. Crude sank below $43 a barrel, while Apple Inc. jumped in extended trading on better-than-expected earnings.

The four-week rally in global stocks has faltered after valuations rose to an 11-month high on speculation central banks would boost efforts to contain the fallout from the Brexit vote. While economists predict the Bank of Japan will ease policy this week, Aso’s comments cast doubt over coordinated efforts by Japanese officials. In the U.S., traders have boosted bets the Fed will raise rates this year, even though they are likely to keep them on hold Wednesday. Apple’s post-results boost in after-market trading contrasted with an 11 percent slide in Twitter Inc., which forecast below-estimate revenue.

“This market seem more devoid of earnings reactions than I can remember in a while,”  Brian Frank, portfolio manager at Key Biscayne, Florida-based Frank Capital Partners LLC, said by phone.“ It’s partially because it’s a typical low-volume summer market, but it’s also the Fed bubble here. It’s all about if central banks are going to do more QE, buying bonds or issuing perpetual zero coupon bonds in Japan. It’s all macro.”

For more on Japan’s fiscal stimulus plans, click here.

Stocks

The S&P 500 rose less than 0.1 percent to 2,169.18 as of 4 p.m. in New York, after falling from a record on Monday. It’s rallied more than 8 percent since June 27. The Dow Jones Industrial Average slipped 0.1 percent, while small-cap shares in the Russell 2000 Index climbed 0.6 percent.

McDonald’s led declines in defensive shares after its sales missed estimates, as Caterpillar Inc. paced gains in industrial companies on its results. Texas Instruments Inc. rallied after profit topped expectations, while United Technologies Corp. rallied on its outlook.

Profits and sales at S&P 500 companies have broadly topped projections so far this season, and analysts have eased their estimates for declines in net income, expecting a 4.5 percent slide for the second quarter for S&P 500 members.

While recent economic data have beaten economists’ forecasts, Fed Chair Janet Yellen and her colleagues have emphasized a gradual pace of tightening. On Tuesday, data showed U.S. consumer confidence fell by less than forecast, while new-home sales rose in June to the highest level in more than eight years. Home prices in 20 U.S. cities rose less than projected in May from a year earlier.

“People are also internalizing chatter about the Fed being more hawkish in their comments tomorrow,” said Matt Maley, an equity strategist in New York at Miller Tabak & Co LLC. “With the market near all-time highs, they’re deciding to take some chips off the table beforehand.”

Analog Devices Inc. rose the most since February after Bloomberg News reported the company is in advanced talks to acquire Linear Technology Corp., according to people familiar with the matter.

The Stoxx Europe 600 climbed 0.1 percent, as the index struggled for direction for a fourth day, swinging between gains and losses amid earnings reports. A rebound that took it to a one-month high last week has stalled, with the gauge trading in a range of less than one point for the past three days amid thin volume. BP Plc lost 1.3 percent as cheaper oil and weak refining margins weighed on results.

Futures on Asian stock indexes were mixed, with contracts on Japan’s Nikkei 225 Stock Average down 1.1 percent in Chicago amid the yen’s gains. Futures on benchmarks in Hong Kong and Australia advanced at least 0.2 percent in most recent trading.

Currencies

The yen strengthened 1.1 percent to 104.66 per dollar, its biggest one-day gain since June 24. That was the day the U.K. announced it had voted to exit the European Union, sending investors scrambling for havens and pushing the Japanese currency to a 2 1/2-year high of 99.02 to the dollar.

The Bloomberg Dollar Spot Index slid 0.3 percent, falling from the highest close since May as the Aussie and kiwi rose at least 0.4 percent versus the U.S. currency. The pound fluctuated between gains and losses as prospects of more stimulus from the Bank of England and weak U.S. economic data pulled it in opposing directions.

Bonds

Five-year yields were close to a one-month high as the Treasury sold $34 billion of the maturity at steeper yields than indicated in pre-auction trading. A gauge of investor interest known as the bid-to-cover ratio fell to 2.27, the weakest since 2009. On Monday, the equivalent measure for a sale of two-year notes was the lowest since 2008.

Investors held back as they awaited policy signals from Wednesday’s Fed decision and the BOJ’s Friday announcement.

In Germany, yields on 10-year debt fell for a fourth day, dropping one basis point to minus 0.05 percent. U.K. gilts also rose, with the 10-year yield falling two basis points to 0.79 percent.

Commodities

Oil fell to a three-month low in New York as supplies were considered to be plentiful in the U.S., the biggest fuel consumer. West Texas Intermediate fell 0.5 percent to settle at $42.92 a barrel and Brent rose 15 cents to close at $44.87.

While U.S. crude inventories probably slid by 2.25 million barrels, gasoline supplies are seen increasing by 600,000 barrels, swelling stockpiles that are also at the highest in decades, according to a Bloomberg survey before an Energy Information Administration report Wednesday.

Gold climbed as investors scaled back expectations for extra stimulus from Japan’s government, boosting the yen and weakening the dollar. Bullion for delivery in three months 0.1 percent to settle at $1,328.30 an ounce, after losing 1.2 percent in two days.

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