Global Stocks Tumble as Treasuries Rally, Yen StrengthensStephen Kirkland and Nikolaj Gammeltoft
Stocks tumbled, sending U.S. benchmark indexes to one-month lows, while Treasuries rallied as investors weighed weaker-than-forecast employment growth and prospects for Federal Reserve stimulus plans. The yen strengthened and shares plunged in Japan.
The MSCI All-Country World Index lost 1.5 percent at 4 p.m. in New York, its worst drop since April 15. The Standard & Poor’s 500 Index fell 1.4 percent, extending its decline from a May 21 record to 3.6 percent, while emerging market equities slumped to a six-month low. The yen gained versus all 16 major peers and the Topix stock index sank 3.2 percent, extending its slide since May 22 to almost 15 percent. The Dollar Index fell 0.2 percent and 10-year Treasury yields decreased six basis points to 2.09 percent, declining from near a 14-month high.
Companies in the U.S. hired fewer workers than projected in May, the ADP Research Institute reported today, while separate data showed growth in service industries and factory orders. U.S. shares extended a global retreat after Japan Prime Minister Shinzo Abe’s speech on the country’s growth strategy disappointed investors.
“You got this contrast in what the Fed should do, should they continue to pump the system full of liquidity or is it the time to pull back?” Bill Schultz, chief investment officer who oversees about $1.1 billion at McQueen Ball & Associates in Bethlehem, Pennsylvania, said by phone. “All those cross-currents throw some caution on the whole market. Given how far it’s run and where it can go from here, investors are taking a pause and a more look-and-see approach than they have in the past, where equities are the only place to be.”
Gauges of commodity, financial, industrial and consumer companies lost at least 1.6 percent to lead declines in all 10 of the main industry groups in the S&P 500 today. The benchmark index last set a record high on May 21, the day before Fed Chairman Ben S. Bernanke told Congress that the central bank’s $85 billion in monthly bond purchases could be reduced as the jobs outlook “improves in a real and sustainable way.”
Fed Bank of Dallas President Richard Fisher, one of the most vocal critics of quantitative easing, called for a reduction in the central bank’s bond buying after a speech yesterday in Toronto. Economists from Goldman Sachs Group Inc. and Deutsche Bank AG predicted the purchases could be curbed beginning in September.
The economy expanded at a “modest to moderate” pace in 11 of 12 Fed districts, with broad-based gains ranging from business services to construction and manufacturing, the central bank said today.
“Hiring increased at a measured pace in several districts, with some contacts noting difficulty finding qualified workers,” the Fed said in its Beige Book business survey, which is based on reports from its regional banks. Growth in the Dallas Fed district was described as “strong.”
Among U.S. stocks moving, Alcoa Inc., Intel Corp., DuPont Co. and Bank of America Corp. lost at least 2 percent to lead declines in all 30 stocks in the Dow Jones Industrial Average, sending the gauge down 217 points to 14,960.59 for its biggest loss since April 15 and first close below 15,000 since May 6. An S&P index of homebuilders slumped 1.6 percent as mortgage applications dropped for a fourth straight week.
Apple Inc. slipped 0.9 percent after a U.S. trade agency said it infringed a patent owned by Samsung Electronics Co., possibly leading to a ban on imports of some older Apple products. Microsoft Corp. and Joy Global Inc. fell following analyst downgrades.
The 135,000 increase in employment followed a revised 113,000 gain in April that was smaller than initially estimated, ADP said. The median forecast of 40 economists surveyed by Bloomberg called for a May advance of 165,000. Government data on June 7 is forecast to show employers added 167,000 jobs and the unemployment rate held at a four-year low of 7.5 percent.
The Institute for Supply Management’s non-manufacturing index climbed to 53.7 last month from 53.1 in April. The median forecast in a Bloomberg survey called for a rise to 53.5. A reading above 50 indicates expansion in the industries that make up almost 90 percent of the economy.
The Commerce Department said orders placed with U.S. factories rose 1 percent in April, less than the median forecast of 1.5 percent, as demand for non-durable goods dropped, probably reflecting lower fuel costs.
Americans are feeling more secure about their own finances with stock and home values rising, even as a growing number say the country is headed down the wrong track, according to a Bloomberg National Poll.
People are more upbeat about a range of financial issues -- job security, retirement savings, home values and household income -- than they were in February, the last time Bloomberg asked the question. Eight measures of financial well-being surveyed show increasing optimism among poll respondents.
The Stoxx Europe 600 Index declined 1.5 percent to the lowest level since April 24 as nine shares fell for each that advanced. Man Group Plc, the world’s biggest publicly traded hedge-fund manager, sank 17 percent, the most since September 2011, as its AHL fund lost about 8.7 percent in May and UBS AG analysts cut their rating on the stock. Meda AB slid 8.1 percent in Stockholm after the maker of the Dymista allergy medicine said it’s not in talks to merge with another pharmaceutical company.
The MSCI Emerging Markets Index fell 1.3 percent, reaching the lowest level since November. The Borsa Istanbul Stock Exchange National 100 Index slipped 1.4 percent, led by Akbank TAS after Bank of America Corp. recommended selling shares in the bank part-owned by Citigroup Inc. The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong sank 0.6 percent.
Russia’s dollar-denominated RTS Index slid 1.6 percent to extend its retreat from this year’s high to 20 percent, entering a bear market. Brazil’s Ibovespa tumbled 2.3 percent to the lowest level since July.
Benchmark gauges in Indonesia, the Philippines and Thailand declined at least 0.4 percent. International money managers pulled a combined $1.6 billion from the Southeast Asian countries since May 22 when Fed Chairman Bernanke said policy makers could consider reducing stimulus if they saw sustained economic improvement, according to data compiled by Bloomberg as of June 3.
The S&P GSCI gauge of 24 commodities gained 0.2 percent, paring an earlier rally of as much as 0.9 percent. Aluminum jumped 1.3 percent to lead gains while gold added 0.3 percent to $1,401.30 an ounce.
West Texas Intermediate oil rose 0.5 percent to $93.74 a barrel after a government report showed that U.S. crude inventories tumbled as refineries increased production. Crude is 1.8 percent higher this month, after falling 5.4 percent in the previous two months.
In Japan, Prime Minister Shinzo Abe said measures related to the “third arrow” of his revival plan won’t start for months. Abe pledged to spur investment in the nation’s electricity industry to about 30 trillion yen ($299 billion) in the next decade as he seeks to revive the world’s third-biggest economy.
Investment in wind, geothermal and other renewable sources will be accelerated by “drastically” speeding up environmental assessment processes, Abe said in prepared comments for a speech in Tokyo today to preview his government’s economic growth strategy to be detailed next week.
“We’re going to have to reduce our expectations for Abenomics,” said Ayako Sera, a strategist at Sumitomo Mitsui Trust Bank Ltd., which has the equivalent of $325 billion in assets. “The initiatives are too small. The direction is right but the comments are all long-term. It looks like things are going to move too slowly.”
Japanese stocks will rally after a correction as more retail investors transfer some of almost $9 trillion of bank savings into equities, according to the nation’s largest independent mutual fund.
“There’s no doubt that money previously kept in deposit accounts is starting to move,” said Atsuto Sawakami, chairman of the 297 billion yen ($3 billion) Sawakami Fund. “The shift from savings to stock-market investment will steadily proceed and become more widespread.”
The yen advanced 0.8 percent to 99.20 per dollar, after reaching 98.87 on June 3, the strongest level since May 9. Japan’s currency appreciated 0.7 percent to 129.88 per euro. The Topix index of stocks closed down 3.2 percent after rising as much as 1.2 percent during Abe’s presentation.
Australia’s dollar slid 1.1 percent to 95.42 U.S. cents after a statistics bureau report showed Australian gross domestic product grew 2.5 percent in the first quarter from a year earlier, the slowest pace since the three months ended June 30, 2011. The pound strengthened 0.6 percent to $1.5402 after a report showed services expanded last month more than economists forecast.
The cost of insuring corporate bonds, with the Markit iTraxx Europe Index of credit-default swaps linked to 125 investment-grade companies, increased 4 basis points to a six-week high of 108 basis points.