Bonds Drop as Dollar Gains on Fed; S&P 500 Little ChangedLu Wang and Daniel Kruger
Treasuries fell while the dollar strengthened as the U.S. economy grew faster than forecast in the second quarter and the Federal Reserve reduced stimulus again. The Standard & Poor’s 500 Index was little changed.
Yields on 10-year Treasuries added 10 basis points to 2.56 percent by 5 p.m. in New York, as the Bloomberg Dollar Spot Index climbed 0.4 percent to a four-month high. The S&P 500 rose less than 0.1 percent, after an earlier decline of as much as 0.4 percent. The Dow Jones Industrial Average slipped 0.2 percent while the Nasdaq 100 Index gained 0.4 percent. Crude oil slid 0.7 percent to a two-week low and gold dropped.
Fed policy makers tapered monthly bond buying to $25 billion in their sixth consecutive $10 billion cut, staying on pace to end the purchase program in October. The U.S. economy rebounded more than analysts estimated in the second quarter, expanding 4 percent after shrinking in the first three months of 2014. S&P said Argentina was in default as talks between the government and hedge funds continued beyond a grace period.
“We’ve seen continued improvement in economic growth and the labor market, and that is putting an upward bias on yields,” said Gary Pollack, who manages $12 billion as head of fixed-income trading at Deutsche Bank AG’s Private Wealth Management unit in New York.
The Fed said slack in the labor market persists even though the economy is picking up, as it continued to trim the asset-purchase program that has expanded its balance sheet to a record $4.41 trillion. The Fed’s Open Market Committee reiterated at it’s likely to reduce bond buying in “further measured steps” and to keep interest rates low for a “considerable time” after ending purchases.
U.S officials led by Chair Janet Yellen are mulling when to raise interest rates for the first time since 2006 as unemployment falls faster than expected and inflation picks up toward their 2 percent goal.
“There’s some reassurance that the Fed isn’t going to be quick to raise rates and that they’re paying close attention to the progress we’re making,” Bruce McCain, who helps oversee more than $20 billion as chief investment strategist at the private-banking unit of KeyCorp in Cleveland, said in a phone interview.
Gross domestic product rose at a 4 percent annualized rate after shrinking 2.1 percent from January through March, Commerce Department figures showed today in Washington. The median forecast of 80 economists surveyed by Bloomberg called for a 3 percent advance.
A separate report today from the ADP Research Institute showed companies in the U.S. added 218,000 workers to their payrolls in July, below economists’ forecast for a 230,000 advance. The private payrolls report comes before Friday’s data from the U.S. government that may show the addition of 231,000 non-farm employees in July, according to the median estimate.
Three rounds of monetary stimulus from the Fed have helped fuel a five-year bull market as the S&P 500 almost tripled from 2009. The benchmark gauge, which is up 6.6 percent this year and reached a record on July 24, has gone without a 10 percent correction since 2011.
Argentina’s credit rating was cut to selective default by S&P as settlement talks with U.S. hedge funds led by Paul Singer’s Elliott Management Corp. continued past the country’s grace period.
The South American country missed today’s deadline to pay $539 million on bonds due in 2033, after a U.S. judge ruled that the funds couldn’t be distributed unless the hedge funds holding defaulted debt also got paid.
Argentine bonds rose earlier in the day on speculation that government officials and holdout creditors would reach an agreement averting the country’s second default in 13 years. Yields on dollar-denominated bonds due in 2033 slid 141 basis points, or 1.41 percentage point, to 8.82 percent. One-month non-deliverable forwards on the peso gained 1.1 percent in most recent trading after declining the previous six days.
The country’s benchmark Merval stock index jumped 7 percent to a record in Buenos Aires, before the S&P announcement. The cost of insuring the nation’s debt for five years using credit-default swaps fell 403 basis points to 1,481 basis points, according to data from CMA.
Equity markets will see declines at some point after surging for the past several years, according to Former Fed Chairman Alan Greenspan.
“The stock market has recovered so sharply for so long, you have to assume somewhere along the line we will get a significant correction,” Greenspan, 88, said today in an interview on Bloomberg TV’s “In the Loop” with Betty Liu. “Where that is, I do not know.”
Pacific Investment Management Co.’s Bill Gross said investors should say “good evening” to the prospect of future capital gains in asset markets as interest rates are set to rise while the economy grows at a slow pace.
Kraft Foods Group Inc., MetLife Inc. and Whole Foods Market Inc. are among 36 S&P 500 companies reporting earnings today. Whole Foods slipped more than 4 percent in extended trading, after lowering its annual sales forecast amid increased competition from new rivals.
About 77 percent of S&P 500 member companies that have posted results this season have beaten analysts’ estimates for profit, while 67 percent exceeded sales projections, data compiled by Bloomberg show. Profits probably rose 8.2 percent in the second quarter, while sales gained 3.5 percent, according to analyst estimates compiled by Bloomberg.
Twitter Inc. soared 20 percent after results topped analysts’ projections and the company boosted its annual sales forecast. Amgen Inc. rallied 5.4 percent after saying it will cut jobs and close plants.
Utilities slid the most among the 10 main industries in the S&P 500 as the jump in Treasury yields made their dividends less attractive. Genworth Financial Inc. lost 14 percent as rising claims costs forced the insurer to review whether its reserves are adequate.
The Stoxx Europe 600 Index slumped 0.5 percent amid worse-than-forecast corporate earnings. The equity benchmark added 0.3 percent yesterday, paring gains in the final half hour as the European Union agreed to new sanctions on Russia in an attempt to get President Vladimir Putin to back down in Ukraine.
EU governments agreed on their most sweeping sanctions against Russia to date, barring state-owned banks from selling shares or bonds in Europe, restricting the export of equipment to modernize the oil industry and barring the sale of technology with military uses.
The measures were followed hours later yesterday by U.S. penalties against three Russian banks and a state-owned shipbuilder, adding to restrictions announced two weeks ago. The EU added eight people and three entities to its sanctions list today after the market closed.
Banco Espirito Santo SA, Portugal’s third-biggest bank by market value, fell 11 percent before the publication of first-half results. After the close of U.S. markets, the lender reported a loss for the period of 3.6 billion euros ($4.8 billion) as it created provisions for its exposure to companies of the Espirito Santo Group, which includes its biggest shareholder.
Global financial markets were roiled early this month after another holding company in the group missed payments on commercial paper.
The ruble advanced amid speculation some investors viewed new sanctions from the U.S. and Europe yesterday as milder than anticipated. Russia’s currency gained 0.6 percent, gaining for the first time in five days against the dollar.
“The markets were preparing for a much worse” outcome, Luis Costa, a London-based strategist at Citigroup Inc. in London, said in e-mailed comments.
The Bloomberg dollar index, which tracks the U.S. currency against 10 major counterparts, rose to 1,020.59, the highest close since March 20.
The euro weakened as much as 0.3 percent to $1.3367, the lowest level since Nov. 13. The dollar rose 0.7 percent to 102.82 yen to cap a nine-day advance that marked its longest winning streak against Japan’s currency since March 2005. Japan’s currency fell 0.6 percent to 137.71 per euro.
Gold slipped 0.2 percent to $1,296.30 an ounce in a third day of declines as the GDP report crimped demand for the metal as an alternative investment. Copper futures advanced 0.7 percent as the rebound in the U.S. economy signaled stronger demand for the industrial metal.
West Texas Intermediate crude fell for the sixth time in seven days, dropping to a two-week low of $100.27 a barrel, after a government report showed that U.S. gasoline supplies gained as demand slipped. Gasoline for August delivery slipped 1 percent to $2.8433 a gallon.