Treasuries Fall on Fed Speculation as Oil to Gold RallyNick Taborek and Michael P. Regan
U.S. Treasury yields rose to an 11-week high and stocks fell a fourth day as signs of economic growth fueled concern the Federal Reserve will scale back bond buying. Copper, gold and crude oil led commodities higher.
Ten-year Treasury yields climbed five basis points to 2.83 percent by 4:34 p.m. in New York, the highest level since September. The Standard & Poor’s 500 Index lost 0.1 percent, capping the longest slump in 10 weeks to close at 1,792.81. Copper jumped the most since August, and the S&P GSCI Index of raw materials rose a third day. West Texas Intermediate oil gained 1.2 percent after U.S. supplies fell for the first time in 11 weeks. Canada’s dollar slipped to a three-year low on concern policy makers may consider cutting key interest rates.
Growth in manufacturing, technology and housing kept the U.S. economy expanding at a “modest to moderate” pace through mid-November, the Fed said in its Beige Book survey released today. U.S. companies added 215,000 jobs in November, according to the ADP Research Institute, more than the 170,000 predicted in a survey of economists, while new home sales rebounded. Data due Dec. 6 is projected to show the U.S. unemployment rate fell to 7.2 percent to match the lowest level since 2008.
“As the unemployment rate comes down, the pressure on the Fed to pull back from quantitative easing obviously increases,” David Kelly, the chief global strategist at JPMorgan Funds in New York, said by phone. His firm oversees about $400 billion in mutual funds. “While you may get these short-term, knee-jerk reactions, up to the point of overheating, good news actually is good news. We’re not close to overheating yet in the U.S. economy.”
The Federal Open Market Committee meets Dec. 17-18 to discuss policy after minutes of their last meeting in October showed officials may reduce their $85 billion of monthly bond buying should the U.S. economy improve as anticipated.
U.S. stocks pared losses, with the S&P 500 rising as much as 0.3 percent during the session, amid optimism U.S. lawmakers will reach a compromise on the federal budget. A deal is being worked on to ease automatic spending cuts that congressional aides say could boost user fees rather than end corporate tax breaks. Senator Patty Murray, a Washington state Democrat and chairman of the Budget Committee, said today there are “still issues to be resolved.”
Gauges of energy, consumer-staples and health care companies lost at least 0.4 percent to lead declines among the 10 main groups in the S&P 500 today.
Sears Holdings Corp. plunged 8.3 percent after Edward Lampert, the hedge-fund manager who for the past eight years tried to turn around the company, cut his stake to below 50 percent. Kinder Morgan Inc. dropped 4.6 percent after releasing financial targets for 2014. CF Industries Holdings Inc. jumped 11 percent after the fertilizer producer said its considering partnership structures.
Investment newsletter writers are the most bullish on the U.S. stock market in more than 2 1/2 years, with 57.1 percent predicting further gains, according to a survey by research provider Investors Intelligence. The last time the reading exceeded this level was in April 2011, when 57.3 of advisers were bullish and the S&P 500 fell 11 percent in the next four months. The bullishness measure last rose above 60 percent in October 2007, the start of a bear market.
The Chicago Board Options Exchange Volatility Index climbed as much as 8 percent to 15.71, above its highest closing level since October. The gauge of S&P 500 options known as the VIX has advanced for seven days, the longest streak since April 2012.
The S&P 500 has surged almost 26 percent this year, challenging 2003 for the biggest annual gain in the last 15 years, as the Fed refrained from reducing monthly bond purchases used to suppress interest rates and spur growth. Policy makers have been scrutinizing data to determine whether the economy is robust enough to withstand a cut to that monetary support, which has helped propel the benchmark index up about 165 percent from a bear-market low in March 2009.
More than two shares fell for each that advanced in the Stoxx Europe 600 Index. Banks led losses, with Standard Chartered Plc retreating 6.5 percent after saying full-year operating profit at its consumer-banking unit will drop at least 10 percent.
Six companies agreed to pay European Union antitrust fines totaling a record 1.7 billion euros ($2.3 billion) for rigging benchmark rates to profit from their own trades, according to the EU. Deutsche Bank AG was fined 725 million euros, the biggest fine in the case. Its shares slid 1 percent.
Germany’s 10-year bund yield added nine basis points to 1.81 percent and the yield on 10-year U.K. gilts increased 8.6 basis points to 2.90 percent.
The MSCI Emerging Markets Index fell for a third day, slipping 0.8 percent. Benchmark gauges in South Korea, the Philippines, Indonesia and the Czech Republic declined more than 1 percent. Ukrainian stocks dropped a seventh day, the longest run of losses in more than two years, amid the largest anti-government protests in almost a decade.
The Shanghai Composite Index jumped 1.3 percent to the highest level since Sept. 12, led by companies linked to Shanghai’s free-trade zone after the central bank said it plans to implement reform measures for the area within three months.
The Australian dollar dropped against all of its 16 major counterparts after economic growth slowed. Third-quarter gross domestic product advanced 0.6 percent from the prior three months, less than economists’ forecast for a 0.7 percent gain.
Canada’s dollar weakened 0.3 percent to the lowest level since May 2010 after the central bank kept interest rates unchanged, fueling speculation diverging monetary policies between Canada and the U.S. will hurt the currency’s appeal to investors.
WTI oil rose for a fourth day in the longest rally since August, settling at $97.20 a barrel. Crude extended gains yesterday in New York after TransCanada Corp. said it will start part of its Keystone XL pipeline January that could relieve a supply bottleneck. Government data today showed U.S. supplies fell 5.59 million barrels to 385.8 million last week, larger than the median estimate for a 500,000-barrel decline.
Copper rose after purchases of new homes increased, adding to signs that demand for the metal is set to rise. Futures for delivery in March added 2.3 percent to $3.240 a pound. New-home sales jumped more than 25 percent, the biggest one-month surge since May 1980, a government report showed today.
The S&P/GSCI gauge advanced 0.3 percent, helped by gains in silver, up 3.2 percent and a 1.9 percent jump in gold futures.
“People are starting to realize that the worst is probably past for metals, so any good economic news is going to push prices higher now,” Michael Smith, the president of T&K Futures & Options in Port St. Lucie, Florida, said in a telephone interview. “The markets have already factored in slowing stimulus.”