Dollar Rallies on Jobs Data as Treasuries, Stocks DeclineJeremy Herron and Stephen Kirkland
The lowest unemployment rate in seven years was greeted with despondency in stock and bond markets, where investors expressed doubt the Federal Reserve can afford more patience on interest rates. The dollar rallied and gold erased its gain for the year.
The Standard & Poor’s 500 Index lost 1.4 percent at 4 p.m. in New York in its worst day since Jan. 5. Apple Inc. added 0.2 percent on news it will join the Dow Jones Industrial Average. The Stoxx Europe 600 Index rose 0.1 percent. The greenback extended an 11-year high against the euro and the Bloomberg Dollar Spot Index increased 1.2 percent, the most since 2011. The yield on 10-year Treasuries jumped 13 basis points to 2.24 percent. Gold fell 2.7 percent to $1,164.30 an ounce.
Employers added 295,000 workers to payrolls in February and the U.S. unemployment rate fell to 5.5 percent, the lowest in almost seven years. While the Fed has said it will be “patient” on increasing borrowing costs, Chair Janet Yellen said last week the timing will depend on economic data. Diverging outlooks of the U.S. and other countries have seen the dollar rise against most global peers this year.
“Investors are looking and focusing entirely on what the Federal Reserve will do in the coming months,” Chad Morganlander, a money manager at Stifel, Nicolaus & Co., which oversees about $170 billion, said by telephone. “Effectively good news in this data point supports the notion that they will raise rates in the not-too-distant future. That scotches the speculative fervor within the equity market.”
The Fed has kept its benchmark, the target for overnight loans between banks, in a range of zero to 0.25 percent since December 2008 to support the economy. Most Fed officials expect to raise rates this year, according to projections released in December. A number said since then an increase around mid-year was possible.
Yields on two-year notes, most sensitive to changes in expectations for central bank policy, jumped to the highest since the start of the year. Futures showed the odds of rate increase in September climbed to 55 percent from 49 percent on Thursday.
“Everybody was waiting to see this number the Fed has been really clear saying everything is data dependent and this is one of the large data segments they’ve been looking at,” George Rusnak, co-head of global fixed income at Wells Fargo Investment Institute in Princeton, New Jersey, said by phone.
The dollar climbed against 14 of its 16 major peers, advancing 1.6 percent to $1.0850 per euro, the strongest since September 2003. The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major peers, closed at the highest in more than 10 years.
PPG Industries Inc. is selling 1.2 billion euros of bonds in the single currency, capping a week of issuance from American firms including Warren Buffett’s Berkshire Hathaway Inc. and Kellogg Co. U.S. borrowers have raised 31.5 billion euros this year, the most for the period since 2007.
Benchmark equity gauges capped the worst week since Jan. 30, as the S&P 500 fell 1.6 percent and the Dow sank 1.5 percent, nearly erasing its gain in 2015.
Among U.S. stocks moving Friday, utility stocks plunged 3.1 percent as Treasuries dropped. The group has the second-highest dividend yield among the 10 main S&P 500 groups.
Apple will join the Dow Jones Industrial Average, replacing AT&T Inc. The changes will push the number of technology-related companies in the 30-member gauge to six and boost their influence even more as the world’s largest company by market capitalization joins Microsoft Corp., Intel Corp., International Business Machines Corp., Cisco Systems Inc. and Visa Inc.
AT&T is being kicked out after falling 4.5 percent in 2014. The changes will take effect with the start of trading on March 19. The phone company fell 1.5 percent.
In Europe, yields are collapsing from German 30-year bunds to Portugal’s two-year notes before the European Central Bank begins its quantitative-easing plan next week.
Germany’s 30-year bond yield fell as much as seven basis points to an all-time low of 0.87 percent. Yields on equivalent-maturity Portuguese debt tumbled as low as 2.51 percent. Irish, Italian and Spanish 10-year yields also fell to the least on record.
From Monday and for the next 19 months, both the ECB and the euro area’s 19 national central banks will seek to buy debt from counterparties in the secondary market.
The Stoxx 600 is poised for a fifth straight weekly gain, pushing gains this year to 15 percent, as the ECB begins additional stimulus.
Utilities were the biggest drag on the index Friday. EON SE lost 1.1 percent after Banco Santander SA cut its rating on the German power producer. RWE AG fell 2.6 percent.
The MSCI Emerging Markets Index dropped 0.7 percent, leaving it down 2.2 percent this week, the biggest drop since the period ended Jan. 30. Emerging-market currencies fell, extending the longest losing streak in three months.
A gauge tracking 20 developing-country currencies slid to a a record as Brazil’s real dropped to the lowest level since 2004 and peers in South Africa and Mexico lost at least 1.3 percent. The index has fallen for seven straight days.
The Shanghai Composite Index fell 0.2 percent, taking this week’s loss to 2.1 percent, its first weekly decline in a month, amid concern that new share offerings next week will divert funds from existing stocks.
China lowered its 2015 growth target this week to 7 percent, the slowest pace since 1990, after the People’s Bank of China cut interest rates for the second time in three months.
U.S. benchmark crude futures dropped for a second day as the the stronger dollar reduced the investment appeal of commodities.
West Texas Intermediate crude for April delivery lost 2.3 percent to settle at $49.61 a barrel in New York. Brent futures dropped 1.2 percent to $59.73 a barrel in London, extending losses this week to 3.7 percent. The European benchmark was at a premium of $10.33 to WTI, compared with $12.82 on Feb. 27.
Bullion erased its 2015 gains Friday after the jobs data as the possibility of higher interest rates damps the appeal of the metal.
Gold futures for April delivery fell 2.7 percent to settle at $1,164.30 an ounce in New York, the biggest drop since Dec. 19, 2013. Earlier, the metal slumped to $1,162.90, the lowest since Dec. 1.