U.S. Stocks Rise, Treasuries Drop on Split Fed; Oil SinksJeremy Herron and Emma O’Brien
U.S. stocks rose, while Treasuries declined after minutes from the Federal Reserve’s last meeting indicated officials were split over whether economic data was strong enough to raise interest rates as soon as June.
The Standard & Poor’s 500 Index added 0.3 percent by 4 p.m. in New York, while the Nasdaq Composite Index climbed 0.8 percent after Mylan NV offered to buy drugmaker Perrigo Co. Alcoa Inc. fell in post-market trading after sales trailed analysts’ estimates. Yields on 10-year Treasury notes rose two basis points to 1.91 percent. The Bloomberg Dollar Spot Index fell less than 0.1 percent. U.S. oil tumbled 6.6 percent as crude inventories jumped the most in 14 years. Gold declined.
While several Fed officials said the economic data and outlook probably warranted higher rates at the June meeting, other policy makers argued that lower energy prices and dollar strength would damp inflation, delaying the need for rate rises, minutes of the March 17-18 Fed Open Market Committee meeting showed. Bets on a September increase rose Wednesday.
“The market is reacting very short-term right now to all these little bits of news,” said Randy Warren, who manages more than $100 million at Exton, Pennsylvania-based Warren Financial Service & Associates Inc. “We’re bouncing around in a band of a couple of percentage points one way or the other. What’s important for investors right now is to look for good companies, not react to every twitch of the Fed.”
Alcoa, the largest U.S. aluminum producer, slipped about 3 percent in after-hours trading. The company, which unofficially kicks off the U.S. earnings season, also changed their view on global aluminum supplies, indicating their expected a surplus in the industrial metal in 2015, after earlier predicting a deficit. While revenue lagged behind projections, Alcoa’s first-quarter profit beat analysts estimates.
Concern that tumbling oil prices and gains in the dollar will hurt profits has weighed on American equities. Profits for S&P 500 companies probably fell 5.8 percent in the first three months of the year, according to analysts’ estimates compiled by Bloomberg. Earnings are also projected to slump in the next two quarters. JPMorgan Chase & Co. and Intel Corp. are among companies scheduled to report earnings over the next seven days.
The Fed minutes recorded a meeting held before recent disappointing payroll figures added to conflicting data that have called into question whether the U.S. recovery is strong enough to justify higher rates. U.S. equities rallied March 18 after the Fed said growth has moderated and officials indicated borrowing costs will rise more slowly than previously estimated.
Policy makers dropped an assurance to be “patient” in a statement following the March meeting. While Chair Janet Yellen has laid the groundwork for an increase this year, officials recently have hinted at putting off raising for the next two meetings while keeping a “shallow” pace once they start.
“This is just confirmation that there’s uncertainty,” Scott Wren, the senior equity strategist who helps oversee $1.4 trillion at Wells Fargo Advisors LLC in St. Louis, said by phone. “We’re two months from June, there’s no way in my mind the Fed is going to make a move like that after being easy for so long without telling us three to four months ahead of time.”
Futures on the Fed funds rate put the odds of a rate hike in September at 30.7 percent Wednesday, up from 29.8 percent on Tuesday, according to data compiled by Bloomberg.
Fed governor Jerome Powell said Wednesday that he saw a greater risk of damaging the economy with a premature rate increase than of triggering inflation by waiting too long. New York Fed President William Dudley said that while recent data has surprised to the downside, he can imagine scenarios in which policy makers raise borrowing costs at the June meeting.
Health-care shares drove gains Wednesday as Mylan soared 15 percent after offering to buy Perrigo for $28.9 billion, a deal that would create a powerhouse for generic medicine. Perrigo surged 18 percent, and the Nasdaq Biotechnology Index rallied the most since January.
Chevron Corp. and Exxon Mobil Corp. fell at least 1.7 percent as oil retreated.
West Texas Intermediate crude slipped for the first time in three days, dropping to $50.42 a barrel after reaching a 2015 high on Tuesday. U.S. oil stockpiles climbed 10.95 million barrels in the week ended April 3 to the highest level since 1930, a government report showed. Brent oil for May settlement slid 6 percent to $55.55 a barrel in London.
The Bloomberg dollar index, which tracks the greenback against 10 major peers, was little changed at 1,192.62 after earlier sliding as much as 0.6 percent. The gauge sank 0.7 percent on Friday after the weaker-than-forecast jobs report fueled the case for keeping key rates near zero.
The dollar appreciated 0.2 percent to $1.07921 per euro, and was steady at 120.13 yen.
“There’s still a little bit of doubt in the market as to really where the U.S. economy is, and more importantly, how the Fed perceives the U.S. economy,” said Raiko Shareef, a markets strategist in Wellington at Bank of New Zealand Ltd. The dollar is “in a little bit of a holding pattern,” he said.
In Europe, the Stoxx 600 Index climbed 0.1 percent in a second day of gains as energy producers jumped. A gauge of oil and gas shares gained 2.5 percent after Royal Dutch Shell Plc agreed to buy BG Group Plc for about $70 billion.
BG surged 27 percent after Shell agreed to pay a premium of about 50 percent on BG’s closing share price on Tuesday. Shell dropped 2 percent. BP Plc climbed 0.5 percent.
“On first sight, the Shell-BG deal looks rather expensive, but M&A is normally quite good for sentiment,” said Christian Zogg, who manages the equivalent of about $10 billion at LLB Asset Management AG in Vaduz, Liechtenstein. “QE is working for the moment,” he said, referring to quantitative easing.
The Stoxx 600 has climbed 18 percent this year, after posting its biggest jump in 10 weeks on Tuesday amid optimism central banks will support the economy. The European Central Bank has begun its second month of bond purchases aimed at staving off deflation and boosting growth.
The DAX Index slipped 0.7 percent after German factory orders unexpectedly fell for a second month in February.
Gold for immediate delivery fell 0.6 percent to $1,202.51 an ounce, the biggest one-day loss since March 30. Gold was little changed last quarter as investors tried to gauge when the Fed would start raising borrowing costs. Copper fell 0.9 percent in London, while nickel gained at least 0.2 percent with zinc.
Cotton futures rose to a six-month high in the U.S. amid rainfall as much as triple the average for this time of year soaked American fields, delaying planting. Oil’s slump helped the Bloomberg Commodity Index down 2.1 percent Wednesday, the most since February.