Stocks Pare Gains as Dollar Strengthens, Treasuries Fall on GDP

  • PBOC's Zhou says China has tools to aid economy as G-20 meets
  • Oil posts best weekly gain since August amid producer talks

U.S. Dollar Shortage and a Lack of Global Liquidity

Global equities pared gains, the dollar rallied and Treasuries fell after reports showed the Federal Reserve’s preferred measure of inflation rose and the pace of U.S. economic expansion exceeded forecasts.

The Standard & Poor’s 500 Index trimmed a second weekly increase, after the benchmark fluctuated throughout Friday. The dollar strengthened for a third day versus the yen, while yields on 10-year Treasury notes topped 1.75 percent. Oil capped the biggest weekly gain since August after signs of strengthening U.S. fuel demand and speculation that some producers will complete an accord to freeze output. Industrial metals jumped as concerns about growth in top consumer China eased.

People’s Bank of China Governor Zhou Xiaochuan said he still has monetary policy tools at his disposal and there is no reason for yuan depreciation as the G-20 meet in Shanghai. Concerns ranging from China’s slowdown to the tumble in commodity prices and the pace of the Fed’s interest rate hikes have roiled global financial markets this year. While stocks gained and oil prices rebounded this week, global equities are still in a bear market and crude is trading near a 12-year low.

“There hasn’t been a lot of conviction,” said Michael Block, chief equity strategist at Rhino Trading Partners LLC in New York. “It tells me we’re going to be stuck in a range here.”

Stocks

The S&P 500 fell 0.2 percent at 4 p.m. in New York, as the benchmark posted a 1.6 percent weekly increase. While the index has rallied about 6.5 percent since reaching a 22-month low on Feb. 11, it remains lower by more than 4.5 percent for the year.

Equities fluctuated after data showed the price gauge based on the personal consumption expenditures index increased 0.1 percent from the prior month and was up 1.3 percent from a year earlier. The core price measure, which excludes food and fuel, climbed 1.7 percent from January 2015, which was the most since November 2012.

A separate report showed the U.S. economy unexpectedly expanded at a faster pace in the fourth quarter than initially estimated. Gross domestic product, the value of all goods and services produced, grew at a 1 percent annualized rate, compared with an initial estimate of 0.7 percent.

The MSCI All-Country World Index rose 0.1 percent, while the Stoxx Europe 600 Index rose 1.5 percent. Glencore Plc and Rio Tinto Group pushed miners to the best performance of the 19 groups. Royal Bank of Scotland Group Plc slid 7.1 percent after saying it would take longer than originally planned to resume shareholder payouts.

Hedge fund manager Dan Loeb said the economy is stronger than some investors realize and that the recent market rout gave him a chance to add to his stock bets.

“We see a lot of people that are on alert, but there haven’t really been any signs of recession from either the economic data, the surveys or our individual conversations with companies,” Loeb said Friday in a conference call held by Third Point Reinsurance Ltd. “We’ve actually increased our net exposure over the course of the month as some of these selloffs have created silly prices for securities.”

Emerging Markets

The MSCI Emerging Markets Index climbed 0.4 percent. Benchmark gauges in Russia and Indonesia climbed more than 1 percent on Friday.

The Hang Seng China Enterprises Index of mainland shares in Hong Kong climbed 2.1 percent, halting a three-day loss. The Shanghai Composite Index rose 1 percent, trimming its first weekly retreat this month to 3.3 percent. The PBOC also published a statement defining current policy as "prudent with a slight easing bias."

Commodities

Metals rose, supported by Zhou’s comments, with nickel in London rising 1.8 percent and copper advancing 2.3 percent.

Oil capped the biggest weekly gain since August, as Russia said talks with Iran are continuing before a planned producer meeting next month on a proposed output freeze amid a global glut.

West Texas Intermediate for April delivery slipped 29 cents to settle at $32.78 a barrel on the New York Mercantile Exchange. Prices touched $34.69 earlier, the highest level since Jan. 28. Russia’s output cap with Saudi Arabia will need to be in place for a minimum of 12 months to support prices, Energy Minister Alexander Novak said Thursday. A meeting with Iranian Oil Minister Bijan Namdar Zanganeh is possible next month, he said. Iran, seeking to boost exports after sanctions were lifted, said the deal is “ridiculous,” while Iraq said a pact hinges on unified support.

Gold posted a consecutive weekly drop for the first time this year. Gold futures for April delivery slid 1.5 percent to settle at $1,220.40 an ounce on the Comex in New York.

U.S. natural gas futures posted a weekly drop, as the contract for March delivery, which expired Thursday, slumped this week to the lowest in almost 17 years. Production is surging at a time when mild weather is curbing demand for fuel.

Currencies

The dollar advanced 0.9 percent to 113.96 yen, rising a third day for the longest winning streak versus the Japanese currency in almost a month, and added 0.7 percent to $1.094 per euro. The greenback strengthened versus 13 out of 16 major counterparts.

South Africa’s rand, Turkey’s lira and Russia’s ruble led losses, weakening at least 1.1 percent versus the dollar.

Bonds

Yields on two-year notes, seen as the most sensitive to Fed policy expectations, surged as traders ratcheted up bets on the pace of rate increases.

Germany’s government bonds rose for a sixth week as consumer-price data from Germany to France and Spain highlighted the challenge facing European Central Bank President Mario Draghi and his colleagues as they attempt to avert deflation.

The cost of insuring corporate debt fell for a second day, reaching the lowest in about three weeks. The Markit iTraxx Europe Index of credit-default swaps on investment-grade companies dropped six basis points to 104 basis points. An index of swaps on junk-rated corporate issuers fell 17 basis points to 424 basis point.

The risk premium on the Markit CDX North American High Yield Index, a credit-default swaps benchmark tied to the debt of 100 junk-rated companies, fell as much as 14 basis points to 525 basis points.

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