Stocks, Oil Fall While Dollar Gains on Fed Easing DebateNikolaj Gammeltoft and Sarah Pringle
U.S. benchmark stock indexes tumbled from five-year highs while oil, gold and silver led commodities lower as Federal Reserve meeting minutes spurred speculation the central bank was considering curtailing monetary stimulus.
The Standard & Poor’s 500 Index slid 1.2 percent to 1,511.95 at 4 p.m. in New York, its biggest plunge since November. The VIX, the benchmark gauge of U.S. equity options, jumped the most since 2011 on growing demand for protection from losses in stocks. Oil tumbled 2.3 percent to $94.46 a barrel, the biggest drop in three months, while silver sank more than 3 percent and gold sank to an almost eight-month low.
The Dollar Index, a gauge of the U.S. currency versus six major peers, climbed 0.7 percent to a three-month high of 81.05 following the minutes. The minutes showed Fed officials “emphasized that the committee should be prepared to vary the pace of asset purchases, either in response to changes in the economic outlook or as its evaluation of the efficacy and costs of such purchases evolved.” Treasuries rose after the release.
“It doesn’t take a lot of imagination to think about where the next potential source of weakness or worry is going to be, and that’s going to be when the Fed steps back from their quantitative easing program,” Brian Barish, president of Denver, Colorado-based Cambiar Investors LLC, which manages about $7 billion, said in a phone interview.
The Fed minutes showed policy makers were divided about the strategy behind Chairman Ben S. Bernanke’s program of buying bonds until there is “substantial” improvement in a U.S. labor market burdened with 7.9 percent unemployment, with some saying an earlier end to purchases might be needed, and others warning against a premature withdrawal of stimulus.
The S&P 500 climbed to the highest level since October 2007 yesterday and ended the session trading at 15.1 times reported earnings, the most-expensive level since July 2011.
The benchmark gauge of U.S. equities closed yesterday about 2.2 percent below its record high and was up 7.3 percent in 2013, almost double the gains in the MSCI Asia Pacific Index and the Stoxx Europe 600 Index.
“The market has moved too far,” Bruce McCain, chief investment strategist at the private-banking unit of KeyCorp in Cleveland, said in a phone interview. His firm oversees $20 billion. “We need to take a breather. Even good, solid economic reports are probably not living up to the expectations.”
All 10 of the main industry groups in the S&P 500 declined, led by losses of at least 1.5 percent in commodity, consumer and technology shares. Caterpillar Inc., UnitedHealth Group Inc. and Walt Disney Co. lost at least 2 percent to lead the Dow Jones Industrial Average down 108 points to 13,927.54.
Apple Inc. fell 2.4 percent after Foxconn Technology Group, the biggest assembler of Apple products, froze hiring across China, spurring concern demand is slowing. Toll Brothers Inc., the largest U.S. luxury-home builder, sank 9.1 percent after earnings missed estimates. Caterpillar slid after saying global retail machine sales dropped.
The VIX, as the Chicago Board Options Exchange Volatility Index is known, jumped 19 percent to 14.68 for its biggest gain on a closing basis since November 2011.
An S&P gauge of homebuilders tumbled 6.7 percent, the most since June. Work began on 613,000 one-family houses at an annual rate last month, the most since July 2008 and up 0.8 percent from December’s 608,000, Commerce Department figures showed today. Total housing starts dropped to a 890,000 rate, less than forecast and restrained by a slump in construction of multifamily units.
Hedge-fund manager David Einhorn said he reduced bets that stocks will rise as equities climbed to a five-year high while U.S. economic growth halted. U.S. gross domestic product shrank at a 0.1 percent annual rate in the fourth quarter, the first decline since 2009, as a plunge in defense spending swamped gains for consumers.
“As the market continues to advance, even as the economy doesn’t, we tend to become less enthusiastic,” Einhorn said on a conference call today held by his Greenlight Capital Re Ltd. reinsurer. “We took some gains in our long portfolio and added to our shorts.”
Sixteen of the 24 commodities tracked by the S&P GSCI Index retreated, sending the gauge down 1.1 percent in its biggest loss of the year. Gold futures sank 1.6 percent to $1,578 an ounce, the lowest since June, and retreated for a fifth session in the longest slump since December 2011.
Metals and oil extended earlier losses triggered by speculation a struggling hedge fund was selling off positions.
“There is a rumor that a fund is blowing up,” Stephen Schork, president of the Schork Group Inc. in Villanova, Pennsylvania, said in a telephone interview. Schork has spent 17 years in physical commodity and derivatives trading including stints at Glencore Ltd. and Novarco Ltd., Marc Rich’s last venture in the global energy trading, and his clients include OPEC and major oil companies. “Metals are getting hit and it’s spreading over to oil.”
Treasury 10-year note yields fell two basis points to 2.01 percent, retreating from near the highest level in 10 months. Two-year rates lost one basis point to 0.26 percent. The dollar was stronger against 14 of 16 major peers.
About three shares gained for every two that fell in the Stoxx Europe 600 Index, even as the gauge retreated 0.3 percent. Lafarge SA rallied 5.5 percent in Paris as earnings beat estimates and the world’s biggest cement maker said it’ll meet most of a cost-cutting goal one year early.
RSA Insurance Group Plc sank 14 percent for the largest drop since 2004 as the U.K.’s biggest non-life insurer by market value cut its dividend by 33 percent. Deutsche Lufthansa AG declined 6.2 percent as the German carrier suspended its dividend for the first time since 2010.
Germany’s 10-year bunds declined for the first time in three days, sending yields up three basis points to 1.65 percent, as demand fell at a 5 billion-euro ($6.69 billion) auction of the euro-region’s benchmark securities. Portugal’s debt rose, sending 10-year yields down two basis points to 6.19 percent, after the nation sold 1.5 billion euros of three- and 12-month bills.
New Zealand’s dollar depreciated 1.4 percent to 83.51 U.S. cents as the central bank said it’s ready to influence the currency’s exchange rate. The currency, known as the kiwi, surged about 45 percent against the dollar since the end of 2008, the biggest advance after its Australian counterpart among more than 150 currencies tracked by Bloomberg. The currency weakened at least 0.3 percent against all 16 major peers.
New Zealand’s Reserve Bank Governor Graeme Wheeler said today in Auckland that he’s “prepared to intervene to influence the kiwi” and that the currency isn’t a one-way bet.
“It’s interesting that the RBNZ have upped the rhetoric around the potential for intervention,” said Geoff Kendrick, head of European currency strategy at Nomura International Plc in London. “This is the first time Wheeler has laid his cards on the table and talked the currency down.”
The pound slid 1.2 percent to $1.5238 as Bank of England minutes showed a growing number of policy makers backed expanded asset purchases.
The yen weakened against 13 of 16 major peers. Japan’s Prime Minister Shinzo Abe said in parliament today that the need for a fund that buys foreign debt “is becoming a lot less.” In last year’s election campaign, his Liberal Democratic Party proposed a joint fund operated by the BOJ, the Ministry of Finance and private investors that would buy foreign bonds as a means to end deflation.
While Group of 20 nation finance ministers vowed to avoid targeting exchange rates, Japan’s leaders have pledged steps to boost the economy that caused the yen to tumble. Policy makers in South Korea and the Philippines are weighing curbs to capital inflows while Brazil intervened this month to halt gains in the real. New Zealand isn’t a member of the G-20.
The MSCI Emerging Markets Index rose 0.3 percent. South Korea’s Kospi index jumped 2 percent, the most in five months, and the won strengthened after central bank Governor Kim Choong Soo said the improved global outlook raises the odds that South Korea will beat growth targets. The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong rose 1.4 percent. Brazil’s Bovespa sank 2 percent, the most since November.