U.S. Stocks Slip After Rally as Japanese Yen, Natural Gas Climb

  • S&P 500 hovers near highest of 2016 after weekly rally
  • Eastern U.S. cold snap boost natural gas as crude extends loss

Global Economy Imbalanced on Inflation Divergence

U.S. stocks slipped from the highest levels of the year as investors assess whether a six-week rally has taken equities too far too quickly. The yen reached an almost 18-month high versus the dollar, while copper capped its longest slide in two years.

The Standard & Poor’s 500 Index retreated after a sixth weekly gain in seven restored more than $1.8 trillion to the value of American equities. Brazilian stocks dropped the most in the world as commodity prices fell and economists forecast a steeper contraction in the economy. The Japanese currency climbed as investors question central-bank policy prescriptions. Natural gas reached an eight-week high amid a cold snap in the eastern U.S. and crude fell below $36 a barrel.

U.S. stocks climbed the most in a month last week, pushing gains from a Feb. 11 low to 13 percent, after Federal Reserve Chair Janet Yellen reaffirmed any interest-rate increases will be gradual even as jobs and manufacturing data signaled the economy continues to strengthen. The Fed will release minutes from its latest meeting on Wednesday, while traders will have to wait until next week for the start of corporate earnings season.

“There’s a big divergence in opinion right now over whether this rally is a head fake or not and that’s the big question,” Craig Sterling, head of U.S. equity research at Pioneer Investments in Boston, said by phone. “Stocks have gone up on not a lot of volume and we’re kind of at an inflection point right now. It’s going to be an interesting quarter because a lot of companies are not going to have a great quarter.”

Stocks

The Standard & Poor’s 500 Index fell 0.3 percent at 4 p.m. in New York. The main U.S. equity benchmark extended 2016 gains to 1.4 percent on Friday after reports showed the pace of job creation remained robust and manufacturing activity improved, bolstering confidence in the economy while central banks have signaled they will continue their efforts to support growth.

The S&P 500 staged a rebound in the second half of the last quarter, erasing losses of as much as 11 percent, helped by a rally in crude oil and easing concerns that a global slowdown will deepen.

Tesla Motors Inc. rose after Chief Executive Officer Elon Musk said pre-orders for its Model 3 electric car reached 276,000 by Saturday night. Virgin America Inc. surged 42 percent after Alaska Air Group Inc. agreed to buy it.

The Stoxx Europe 600 Index added 0.4 percent, and the MSCI Asia Pacific Index increased 0.4 percent. The rebound in European shares has stalled for more than two weeks. With a valuation of about 15.2 times estimated earnings, the Stoxx 600 traded at its cheapest level since January 2015 relative to the S&P 500 on Friday.

Emerging Markets

The MSCI Emerging Markets Index slipped 0.2 percent, after a 1.3 percent drop on Friday.

Oil producer Petroleo Brasileiro SA fell along with ethanol producers after reports the state-controlled company may reduce fuel prices. Petrobras, as it’s known, and Itau Unibanco Holding SA contributed the most to the decline in the Ibovespa gauge.

The Borsa Istanbul 100 Index rose 1.8 percent and the yield on two-year notes slide four basis points to 9.6 percent. Turkish inflation dropped more than forecast, giving the central bank more room to keep cutting rates.

Bonds

Treasuries were little changed, with 10-year note yields at 1.76 percent. The rate on benchmark German bunds was also little changed, at 0.13 percent.

Morgan Stanley recommended TIPS, saying the Fed is “decidedly dovish,” as amid growing speculation inflation will pickup. The difference between yields on 30-year bonds and similar-maturity Treasury Inflation Protected Securities has widened to 1.86 percentage points from as low as 1.4 in February.

Greece’s bonds fell, with shorter-dated yields rising the most in almost two months, as International Monetary Fund Managing Director Christine Lagarde said the organization is “a good distance away” from an agreement that would allow for additional loans to Europe’s most-indebted state.

Currencies

The Bloomberg Dollar Spot Index rose 0.1 percent after a five-day losing streak. Citigroup Inc., the world’s biggest currency trader, says it’s “too soon” to buy the U.S. dollar after it slumped to a nine-month low and economic data came in stronger than forecast.

The yen strengthened 0.3 percent to 111.34 per dollar after jumping 0.8 percent on Friday amid the greenback’s retreat.

Brazil’s real led losses in Latin America as commodities fell, undermining the prospects for the country’s exports, while the ruble was the biggest loser among emerging-market currencies on Monday, dragged lower by falling oil prices.

Commodities

Natural gas rose to the highest in almost eight weeks in New York on speculation that unseasonably cold weather will trim a fuel stockpile glut. Most of the eastern U.S. will see below-normal temperatures April 9 through April 13, according to MDA Weather Services. Futures for May delivery jumped 2.2 percent, to settle at $1.998 per million British thermal units on the New York Mercantile Exchange, the most since Feb. 10.

West Texas Intermediate for May delivery fell $1.09 to close at $35.70 a barrel. It’s the lowest settlement since March 3.

Copper capped the longest losing streak in two years as Barclays Plc forecast weaker prices amid concern that supply will continue to outstrip consumption. Futures fell 1.5 percent to settle at $4,7060.50 a metric ton on the London Metal Exchange, a seventh straight decline, the longest stretch since February 2014.

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