Dollar Slumps While S&P 500 Advances, Europe Bonds Gain
The dollar slid as U.S. business activity shrank for the first time in more than three years and investors bet the Federal Reserve won’t reduce its bond buying program. The Standard & Poor’s 500 Index (SPX) rose to a record for a second day while industrial metals led commodities lower.
The Dollar Index, a gauge of the currency versus six major peers, fell 0.5 percent for a fourth straight loss, its longest slump since February. The S&P 500 rose 0.2 percent to 1,597.57 at 4 p.m. in New York, capping a sixth straight month of gains. French 10-year yields set a record low of less than 1.70 percent and bonds in Italy, Spain and Portugal rallied. Ten-year Treasury yields traded near their lows of the year. Zinc, copper and aluminum lost more than 1.3 percent to help lead commodities lower.
The Fed will consider renewing its commitment to bond buying, or quantitative easing, at a two-day meeting that started today. The MNI Chicago Report’s business barometer fell to 49 in April, the lowest since September 2009 and less than the reading of 50 that signals contraction. Euro-area inflation slowed more than economists forecast in April, data showed today, and most economists in a Bloomberg News survey predict the European Central Bank will cut interest rates this week.
“The disinflationary tendencies that are building into the U.S. and the risk that the debate shifts to expanding rather than tapering QE has conspired to keep the U.S. under pressure,” Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce in London, said in a phone interview. “The fact we’ve now seen U.S. 10-years testing the lows of the year is keeping the U.S. dollar on the defensive.”
The dollar weakened against 15 of its 16 major peers. The U.S. currency lost 0.5 percent to $1.3168 per euro, near the weakest level since February. Ten-year Treasury yields were little changed at 1.67 percent after slipping as much as 3.5 basis points to 1.64 percent, the lowest since December.
The S&P 500 ended the session higher after swinging between gains and losses. The benchmark gauge closed yesterday at an all-time high, finishing its recovery from a 3.3 percent slump from April 11 to April 18.
International Business Machines Corp., Microsoft Corp. and American Express Co. rose more than 1 percent to lead the Dow Jones Industrial Average up 21.05 points to 14,839.8. Apple Inc. jumped 2.9 percent after the iPhone maker was said to be selling $17 billion of bonds in the biggest U.S. corporate offering on record, according to a person familiar with the offering, as the company seeks to help finance a $100 billion capital reward for shareholders.
Avon Products Inc. (AVP) gained 4.1 percent after earnings topped analysts’ estimates as cost reductions started to show results. Pfizer Inc. declined 4.5 percent as the world’s biggest drugmaker reported earnings that fell short of analysts’ projections. Newmont Mining Corp. (NEM) lost 4.6 percent as the biggest U.S. gold producer reported profit that missed estimates following a slump in gold prices and higher-than-expected costs.
The bull market in U.S. equities entered its fifth year last month and the S&P 500 has surged about 136 percent from a 12-year low in 2009, driven by better-than-estimated corporate earnings and three rounds of bond purchases by the Fed. Earnings beat the average analyst estimate at 73 percent of the 306 companies in the S&P 500 that reported results so far in the latest reporting season. Profit at S&P 500 companies rose 1.1 percent in the first three months of the year, according to analysts’ projections compiled by Bloomberg.
“Given the strength we’ve seen in the market here and with earnings being a mixed bag, you’re just getting a little bit of pause,” Kurt Brunner, who helps manage $1.5 billion at Swarthmore Group in Philadelphia, said in a telephone interview. “We’ve had a good month in here, now there are some concerns over ‘are we heading into that growth problem again?”
The slump in business activity overshadowed another report showing consumer confidence climbed more than forecast in April. The Conference Board’s index rose to 68.1, exceeding the highest projection in a Bloomberg survey, from a revised 61.9 in March, data from the New York-based private research group showed today. Economists surveyed by Bloomberg forecast an increase to 61.
The S&P/Case-Shiller index of property values in 20 cities increased 9.3 percent in February from the same month in 2012 after rising 8.1 percent in the year ended in January, the group said today in New York. The gain exceeded the 9 percent median forecast from economists in a Bloomberg survey.
Norway’s $730 billion sovereign-wealth fund, the world’s largest, warned that the current upbeat mood in global stock markets may not last even as low interest rates offer scant returns on bonds.
“The safest investment alternative will provide a return after inflation below zero,” Yngve Slyngstad, chief executive officer of Norges Bank Investment Management, said in the text of a speech held today at parliament in Oslo. “Many countries are heavily indebted and monetary policy implies low, and in some cases negative, real interest rates ahead. Moreover, today’s favorable stock market conditions may be based on expectations that do not materialize.”
The Stoxx Europe 600 Index slipped 0.2 percent while still capping an 11th straight month of gains, the longest winning streak since 1997.
UBS AG, Switzerland’s biggest bank, rallied 5.7 percent as first-quarter earnings beat analyst estimates on higher revenues at the investment bank and in wealth management. BP rose 2.1 percent as Europe’s second-largest oil company reported profit that exceeded projections because of an improved performance at its fuel-trading business. Deutsche Bank AG surged 6.1 percent on plans to raise as much as 4.8 billion euros ($6.3 billion) in capital.
Anheuser-Busch InBev NV (ABI), the world’s biggest brewer, lost 1.2 percent after posting first-quarter profit that missed analysts’ forecasts on weaker-than-anticipated beer sales in Brazil and the U.S.
The Frankfurt-based ECB will lower its benchmark rate to a record 0.5 percent when central bankers meet in Bratislava on May 2, according to the median estimate of analysts in a Bloomberg survey.
Reports from the European Union’s statistics office in Luxembourg today showed the annual inflation rate in the euro area fell to 1.2 percent in April, the lowest since February 2010, and the March jobless rate advanced to 12.1 percent, the highest since the data series began in 1995.
“The chances of an ECB cut this week have been revised upwards so the market has been chasing fixed-income, particularly in Europe,” said Francesco Garzarelli, the London- based co-head of macro and markets research at Goldman Sachs Group Inc., in an interview on Bloomberg Television’s “The Pulse” with Francine Lacqua and Guy Johnson. For the Fed, “the big question mark, or the elephant in the room, is whether they taper these purchases” of bonds, he said.
Germany’s 10-year bund yield rose one basis point to 1.22 percent after touching a nine-month low of 1.18 percent.
Spain’s 10-year securities capped an eighth monthly gain, the longest streak in eight years, as yields declined two basis points to 4.135 percent, the least since October 2010. Italy’s two-year note yield fell to 1.09 percent, the least on record.
The MSCI Emerging Markets Index rose 1.1 percent to a six- week high as investors speculated global monetary stimulus will boost demand for riskier assets. Benchmark indexes in Brazil, South Korea, Hungary, Russia, Turkey and the United Arab Emirates rose more than 1 percent.
“There’s plenty of liquidity around the world, and so one would presume we will continue to see the rally for the next six to 12 months,” said Khiem Do, the Hong Kong-based head of Asian multi-asset strategy at Baring Asset Management Ltd., which oversees about $51 billion. “In the short term, some markets like Japan and the U.S. have been overbought and could consolidate from day to day.”
Chinese markets were closed today for holidays, while Japan’s were shut yesterday. There are holidays tomorrow in most of Asia’s emerging markets.
Gold futures for June delivery rose 0.3 percent to settle at $1,472.10 an ounce in New York. The price has climbed 11 percent from a 26-month low of $1,321.50 on April 16. The metal has slumped 12 percent this year.
Crude oil slipped 1.1 percent to $93.46 a barrel in New York and lost 3.9 percent this month. U.S. inventories probably increased to the highest level in more than 22 years, a Bloomberg survey showed.
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