U.S. Stocks Fall With Dollar Amid Slow Growth, Fed Rate BetsJeremy Herron
U.S. stocks, Treasuries and the dollar slipped amid a global retreat in some of the year’s most popular trades, as the Federal Reserve did little to alter views on the timing for higher interest rates. Oil rallied.
The Standard & Poor’s 500 Index fell 0.4 percent at 4 p.m. in New York. The Bloomberg Dollar Spot Index dropped 0.5 percent for a sixth day of losses. The yield on 10-year Treasury notes rose four basis points to 2.04 percent, while rates surged on debt from Germany to the Netherlands and Spain. European equities capped the biggest two-day slide this year. Oil jumped to a four-month high.
Fed policy makers unanimously voted to hold rates near zero, repeating they will boost them when they see further labor-market improvement and are “reasonably confident” inflation will move back to their 2 percent goal over time. They have said their decision will be guided by the latest data. A report earlier Wednesday showed growth almost ground to a halt in the first quarter, held back by severe winter weather and slumping business spending and exports.
“It confirms people’s view that the Fed won’t raise interest rates in June - that’s certainly driven home today by GDP growth,” said Kristina Hooper, a U.S. investment strategist at Allianz Global Investors in New York. The firm oversees $499 billion. “But there is still some question mark because the Fed is blaming part of downturn in the first quarter on transitory factors.”
The dollar capped its longest slump since 2013 as the economic data added to weaker-than-forecast reports that have dimmed the growth outlook. European stocks trimmed this year’s advance to 16 percent after a 3.7 percent slide since Monday, while top money managers are turning against euro-area government bonds after yields dropped to unprecedented lows.
Global investors’ penchant to take on risk is on the rise, that’s the key to the weakening dollar, according to Steven Englander, global head of Group of 10 currency strategy at Citigroup Inc.
“Risk appetite is improving as Greek risks diminishes; inflation expectations bounce back; and the fear trade is being unwound,” Englander wrote in a note published Wednesday. “U.S. data and Fed expectations are not helping, but this would not explain why U.S. yields have been going up the last two days, while the U.S. dollar is going down. U.S. yields are being dragged up by global yields, just as they were dragged down.”
Fed officials had all but ruled out a rate increase before this meeting, while analysts had shifted out expectations for the first boost to September from June. While the impact of harsh weather is likely to dissipate, drags such as the drop in capital spending may last longer, Fed policy makers said.
“Economic growth slowed during the winter months, in part reflecting transitory factors,” the Federal Open Market Committee said in a statement Wednesday in Washington. “The pace of job gains moderated,” it said, and “underutilization of labor resources was little changed.”
The S&P 500 had risen 2.3 percent this month through yesterday, rebounding from a drop in March, after earnings from companies including Merck & Co. and Microsoft Corp. beat analysts’ estimates. About 74 percent of the S&P 500 companies that have reported earnings this season have beaten analysts’ profit projections, while 48 percent topped sales estimates.
“Basically right now it just said it’s still watching, as is the market watching, to see if we are going to rebound,” Quincy Krosby, a market strategist at Prudential Financial Inc., in Newark, New Jersey, said by phone. Prudential oversees more than $1 trillion in assets. “That’s the key. If the data across the board begin to pick up, the clock will be ticking.”
German bonds slid after the country failed to meet its sales goal at an auction today and inflation picked up in Europe’s largest economy.
Germany got bids of 3.649 billion euros at the five-year note auction, short of its 4 billion-euro sales goal. Adding to the supply pressure, Italy auctioned 8.25 billion euros of debt on Wednesday, while Portugal began selling 10- and 30-year bonds via banks.
The sales come amid signs investor sentiment is souring toward European bonds. DoubleLine Capital’s Jeffrey Gundlach said on Tuesday he’s considering making an amplified bet against German bonds to join a growing group of top money managers wagering against the debt.
Last week, Bill Gross, who ran the world’s largest bond fund until last year, called the 10-year German bund the “short of a lifetime.”
The Stoxx Europe 600 fell 2.2 percent, leaving it down 3.7 percent since Monday. Germany’s DAX Index capped a 5 percent slide over two days.
“European markets have gone up a lot during the first quarter on hopes that earnings are going to be good,” said Pierre Mouton, who helps oversee $8 billion at Notz, Stucki & Cie. in Geneva. “One thing that could prevent the market going higher is the strength of the euro recently. That may be detrimental to the performance of European exporters.”
The euro climbed for a fifth day versus the dollar, rising 1.2 percent to $1.111. The pound rose for a seventh day versus the dollar in its longest winning run in three years. Sterling climbed 0.6 percent to $1.5432, the highest level in two months. The BOE probably will increase interest rates in 12 months time, four months after the Fed, according to Morgan Stanley indexes.
West Texas Intermediate crude gained after a government report showed crude inventories at the biggest U.S. oil hub fell for the first time in 21 weeks. Futures in New York rose 2.7 percent to $58.58 a barrel. Brent for June settlement climbed to $65.84 a barrel in London.