Treasuries, Oil Climb After Fed as Stocks Erase Gains

Treasuries rose, reversing earlier losses, and the dollar declined after the Federal Reserve refrained from indicating when it will reduce the pace of stimulus. Stocks erased gains in the final hour of trading.

Treasury 10-year note yields fell two basis points to 2.58 percent as of 4 p.m. in New York, after earlier jumping as much as nine points. The Bloomberg Dollar Index lost 0.1 percent. The Standard & Poor’s 500 Index slipped less than 0.1 percent, wiping out a 0.7 percent advance. Gold futures fell 0.9 percent, trimming the biggest monthly gain since January 2012, while oil rallied 1.9 percent. The MSCI Emerging Markets Index capped the longest losing streak since April.

Fed Chairman Ben S. Bernanke and his colleagues are debating when employment gains will be sufficient to warrant tapering bond purchases that swelled the Fed’s balance sheet to a record $3.57 trillion. The Fed said that while economic growth should pick up from its recent pace, persistently low inflation could hamper the recovery. Government data today showed gross domestic product grew at a 1.7 percent annualized rate, more than the 1 percent advance predicted in a survey of economists. The European Central Bank and Bank of England meet tomorrow.

“The mention of low inflation being a risk may push out expectations for tapering, but by and large, this statement reads as expected,” Ryan Larson, the Chicago-based head of U.S. equity trading at RBC Global Asset Management (U.S.) Inc., said in an interview. His firm oversees $290 billion.

Bond Purchases

The Fed said its bond purchases will remain divided between $45 billion a month of Treasury securities and $40 billion a month of mortgage-backed securities. The Fed also will continue reinvesting securities as they mature.

“The committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance, but it anticipates that inflation will move back toward its objective over the medium term,” the Federal Open Market Committee said today at the conclusion of a two-day meeting in Washington.

The Fed’s recognition of the risk of deflation was the main change in its policy statement, according to Marc Chandler, global head of currency strategy at Brown Brothers Harriman & Co. in New York.

“Clearly the economy is not a fragile as it was in late 2012,” Chandler wrote in a note to clients. “On the other hand, the increase saliency of the low inflation in the Fed’s thinking is also critical, not just growth and employment.”

$85 Billion

Speculation about the fate of the Fed’s $85 billion in monthly bond purchases has whipsawed markets since May, when Bernanke first indicated policy makers could begin reducing the stimulus this year if the job market continues to improve.

The S&P 500 tumbled 5.8 percent from a record high on May 21 through June 24. It then rebounded as much as 7.8 percent, reaching its latest closing record of 1,695.53 on July 22 as policy makers stressed that any tapering of stimulus depends on improving economic data. Ten-year Treasury yields jumped from an intraday low of 1.61 percent on May 1 to as high as 2.75 percent on July 8.

Three rounds of bond purchases by the U.S. central bank, coupled with improving earnings and economic growth, has helped propel the S&P 500 up about 150 percent from its bear-market low in 2009. The central bank will begin to reduce its bond-purchase program in September, according to the latest Bloomberg survey of economists.

Bond Yields

Thirty-year U.S. bond yields fell four basis points to 3.64 percent after reaching 3.74 percent, the most since Aug. 16, 2011. U.S. government securities generated a loss of 0.2 percent in July through yesterday and have declined 2.6 percent for the year, according to the Bloomberg U.S. Treasury Bond Index.

Consumer, energy and industrial companies helped lead gains among the 10 main industry groups in the S&P 500. Comcast Corp. climbed 5.6 percent after posting earnings that topped analyst estimates. Facebook Inc. briefly rose above its $38 initial public offering price for the first time since its debut trading day, before retreating.

Mosaic Co. fell 6.2 percent, extending losses from yesterday after OAO Uralkali decided to end production restrictions on potash that underpinned global prices. Visa Inc. lost 7.5 percent after a court ruling on debit-card fees.

Trading volumes for S&P 500 companies were 11 percent above the 30-day average. Some 33 companies in the S&P 500 released quarterly results today. Of those that have reported so far this season, 73 percent have topped analysts’ profit projections and 56 percent beat sales estimates, according to data compiled by Bloomberg.

1,700 Resistance

The S&P 500 reversed course after pulling within 2 points of 1,700, sliding more than 0.7 percent in the final hour. It was the third time in seven days the index surpassed 1,698 only to retreat by the close of trading. Equities opened the session higher after the GDP data and a private report on employment topped economists’ estimates.

The 200,000 increase in private jobs in July followed a revised 198,000 gain in June that was higher than initially estimated, according to data today from the ADP Research Institute in Roseland, New Jersey. The median forecast of 40 economists surveyed by Bloomberg called for a July advance of 180,000.

Government payroll data, to be released Aug. 2, will show employers added 185,000 workers in July, after increasing 195,000 in June, a survey shows. The jobless rate probably fell to 7.5 percent from 7.6 percent, according to economists’ projections.

European Markets

The Stoxx Europe 600 Index ended little changed today and advanced 5.1 percent in July, also the biggest rally since October 2011.

Anheuser-Busch InBev NV, the world’s biggest brewer, rose 6.9 percent, the most in more than three years, after second-quarter profit growth topped estimates as it improved sales in Brazil and sold higher-priced beers in the U.S. Eutelsat Communications SA slid 6.2 percent after agreeing to buy Satelites Mexicanos SA in a transaction valued at $1.14 billion including debt.

The MSCI Emerging Markets Index fell 0.5 percent, trimming this month’s advance to 0.9 percent. Benchmark gauges in Turkey, Malaysia and the Philippines slid more than 1.2 percent. The Shanghai Composite rose for a second day, gaining 0.2 percent after Chinese policy makers pledged to stabilize growth.

The S&P GSCI Index of 24 commodities rose 1 percent. Nickel, copper, lead and oil jumped at least 1.9 percent to lead gains. West Texas Intermediate crude oil rose 8.8 percent to $105.03 a barrel in July, its biggest gain since August. Today’s rally followed data showing oil inventories at a major hub dropped to a 15-month low.

The euro has gained 2.2 percent to the greenback this month, while the yen has appreciated 1.2 percent. New Zealand’s dollar has led all major gainers with a 3.2 percent increase and the Norwegian krone has climbed 3 percent, the second-most. Brazil’s real is the biggest loser, with a 2.1 percent decline.

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