Dollar Climbs to 7-Year High as Energy Stocks, Oil Tumble

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The dollar rose to an almost seven-year high versus the yen as growth in manufacturing underscored the strength of the American economy. Most U.S. stocks fell as oil slid to its lowest level in more than two years.

The Bloomberg Dollar Spot Index was up 0.7 percent by 5 p.m. in New York as the currency jumped to its strongest level since December 2007 against the yen. The Standard & Poor’s 500 Index closed down less than 0.1 percent after reaching a record last week, with energy shares slipping 1.7 percent. The Russell 200 Index dropped 0.3 percent. West Texas Intermediate crude sank 2.2 percent to $78.78 a barrel after Saudi Arabia cut the price it charges for oil to the U.S. Yields on 10-year Treasuries rose one basis point to 2.34 percent as gold slid.

The dollar has rallied and equities reached record levels last week as data reinforced the health of the U.S. economy in comparison to other nations. While the Federal Reserve ended its bond buying program, fueling speculation it will raise benchmark interest rates next year, Japan and the euro area are still ramping up stimulus to ignite lackluster growth. American manufacturing grew at a faster pace than estimated last month, while factory gauges for China and the euro zone retreated.

“All arguments are in favor of the dollar,” said Lutz Karpowitz, a senior currency strategist at Commerzbank AG in Frankfurt. “It’s very clear that the Fed is the central bank that is relatively hawkish. We are seeing underlying dollar strength, and it’s justified.”

Nikkei Futures

The yen extended last week’s 3.9 percent slide, dropping 1.5 percent to 114.05 per dollar after the Bank of Japan unexpectedly raised the annual target for enlarging the monetary base Oct. 31 to 80 trillion yen ($709 billion), from a previous range of 60 to 70 trillion yen previously. While Japanese markets were closed for a holiday, futures on the Nikkei 225 Stock Average jumped 1.9 percent today in Chicago, to 17,355.

The S&P 500 rallied last week, capping a 2.3 percent monthly advance as better-than-estimated company earnings and U.S. gross domestic product data eased concern over the end of the Fed’s asset purchases. The S&P 500 has rebounded 8.3 percent from a six-month low reached Oct. 15, and now trades at 16.8 times projected profit, close to its highest valuation since 2009, data compiled by Bloomberg show.

Manufacturing data today added to evidence that the world’s largest economy can sustain a withdrawal in central-bank stimulus. The Institute for Supply Management’s factory index increased to 59 in October, matching August’s level, which was the highest since March 2011. It dipped to 56.6 in September. Readings above 50 indicate expansion. A separate gauge of production was the strongest in a decade.

Earnings Clues

Other releases this week will probably show U.S. services industries grew last month, while the unemployment rate remained at a six-year low.

Earnings reports may provide further clues to the health of the U.S. economy. American International Group Inc., Time Warner Inc., and Walt Disney Co. are among more than eighty S&P 500 companies posting financial results this week. Analysts predict profit for members of the gauge rose 8 percent in the third quarter, exceeding than the 4.9 percent growth projected a month ago. Sales probably increased 3.6 percent in the three-month period.

“We’re continuing to focus on earnings, which by and large seem pretty good,” Walter Todd, who oversees about $1 billion as chief investment officer for Greenwood, South Carolina-based Greenwood Capital Associates LLC, said in a phone interview. “That’s been positive for the market, as has the lack of headlines around international events and Ebola.”

Apple Meetings

Apple Inc. gained 1.3 percent today to close at a record-high $109.40. The company is holding calls with investors to discuss a bond sale, according to a person familiar with the matter. Goldman Sachs Group Inc. and Deutsche Bank AG were hired to organize the calls, said the person, who asked not to be identified because they’re not authorized to speak about it.

Seven out of 10 major industries in the S&P 500 rose, with utilities climbing 0.7 percent as a group. Energy shares slumped, led by Diamond Offshore Drilling Inc. and QEP Resources Inc, as oil prices tumbled.

WTI crude settled below $80 a barrel at its lowest price since June, 2012, after Saudi Arabian Oil Co. cut prices for all grades to the U.S., according to an e-mailed statement. The state-owned producer, known as Saudi Aramco, will sell Arab Light to clients in Asia for 10 cents less than Middle East benchmarks, down from a November discount of $1.05.

Gas, Gold

WTI slid 12 percent in October, the most since May 2012, and are down 20 percent this year, with both U.S. crude and Brent oil traded in London entering bear markets last month amid signs global output is outpacing demand.

Natural gas rose 4.5 percent, up a fifth day and rallying the most in four months amid forecasts for unusually chilly weather in the U.S. East that may boost heating demand. Gold futures approached a four-year low, with contracts for December delivery slipping 0.2 percent to settle at $1,169.80 on the Comex in New York. The precious metal declined for a fourth straight session, the longest slump since September 12.

Treasuries fell, sending yields on five-year U.S. notes up two basis points, or 0.02 percentage point, to 1.63 percent. The rate on similar-maturity German debt rose one basis point to 0.85 percent.

Italian bonds dropped for the first time in five days amid speculation the European Central Bank will refrain from adding to its stimulus program at a meeting this week. Yields on 10-year Italian notes jumped seven basis points to 2.41 percent and Spain’s increased seven points to 2.14 percent.

European Stimulus

The scope for buying eligible asset-backed securities as part of euro-area stimulus “is rather large and purchases of senior tranches alone should make it possible to generate significant volumes,” ECB President Mario Draghi said in letters to European lawmakers. The ECB’s Governing Council meets in Frankfurt this week and announces its monetary-policy decision Nov. 6.

Bill Gross, in his second investment outlook since joining Janus Capital Group Inc., said deflation is a “growing possibility” as governments worldwide struggle to ignite price gains and stimulate growth.

Central banks globally have made “a damn fine attempt” at fueling inflation, yet their efforts have pushed up financial assets rather than prices in the real economy, Gross wrote in an outlook document entitled “The Trouble with Porosity and Prosperity.”

Emerging Markets

The Stoxx Europe 600 Index slid 0.8 percent after rallying 2.9 percent last week. HSBC Holdings Plc fell 1.8 percent as Europe’s largest bank by market value posted lower-than-estimated profit, setting aside more than $1 billion for customer redress and a probe into rigging currency markets.

The MSCI Emerging Markets Index fell for the first time in five days, declining 0.7 percent, as Chinese shares in Hong Kong retreated from the highest level in six weeks. The Hang Seng China Enterprises Index of mainland companies listed in the city dropped 0.9 percent.

The Chinese government’s manufacturing Purchasing Managers’ Index came in at 50.8 for October, trailing the 51.2 median estimate of analysts surveyed by Bloomberg and dropping from September’s 51.1 level. Readings above 50 indicate expansion.

The ruble retreated 1.4 percent to 43.61 per dollar while the Micex Index of stocks added 0.2 percent. The Moscow Exchange was open even as Russia had a public holiday, with many banks and brokerages limiting activity.

Rebel Elections

Russian-backed rebels held elections in their self-proclaimed people’s republics in eastern Ukraine, a move that the government in Kiev said poses a threat to the peace process. The one-day ballot, designed to pick a head of government as well as local parliament, was only backed by Russia.

Investors pulled money out of U.S. exchange-traded funds that invest in emerging markets last month for the first time since March. Redemptions from ETFs that invest across developing nations as well as those that target specific countries totaled $994.9 million in October compared with inflows of $977.9 million in September, according to data compiled by Bloomberg.

Futures on Australia’s S&P/ASX 200 Index were down 0.1 percent in most recent trading, after a 0.4 percent drop in the index during Sydney trading hours. The Australian dollar retreated 1.3 percent to 86.85 U.S. cents, touching 86.78, the lowest price since Oct. 15. The Reserve Bank of Australia is projected to keep its key rate at a record-low 2.5 percent tomorrow, and retail sales data is also due.