U.S. Stocks Hover Near Records as Dollar Rises; Oil Extends Jump

  • Greenback snaps drop even as September hike odds recede
  • Nikkei futures mixed amid three-day recovery in the yen

The Calm Before the Storm? Draghi May Shake Things Up

U.S. stock indexes held near record levels, while the dollar gained as traders digested mixed data on the world’s largest economy amid bets interest rates will stay low.

The S&P 500 Index closed little changed after rising to within three points of an all-time high as the dollar snapped a two-day slide. The loonie erased gains after the Bank of Canada said there were increased risks of slower growth, while Mexico’s peso slumped as the nation’s finance minister resigned. Crude climbed to a one-week high as investors parsed comments from OPEC and Russia for signs of whether oil producers will agree on measures to bolster the market. Copper rose the most in three weeks amid a Chilean mine strike.

Traders pared bets on a U.S. rate hike in September to 22 percent, according to Fed fund futures tracked by Bloomberg. The U.S. economy grew at a modest pace in July and August as a strong labor market failed to put much upward pressure on wages and prices, the Federal Reserve’s latest Beige Book showed Wednesday. The U.S. Citigroup Economic Surprise Index, which measures how data comes in relative to expectations, fell below zero for the first time since July, a sign that some figures have been worse than expected.

“The economic data that’s come out in the past week or so has been underwhelming,” said Walter Todd, who oversees about $1.1 billion as chief investment officer for Greenwood Capital Associates LLC in South Carolina. “There was a little hype about the Fed moving in September, but now we’re back to where we were a month ago, questioning whether they’re going to raise at all this year.”

Stocks

The S&P 500 lost less than 0.1 percent to 2,186.16 as of 4 p.m. in New York. The U.S. benchmark has traded within a band of 1.5 percent for 39 days, the narrowest range ever for that length of time. It’s gone 42 sessions without a 1 percent move in either direction, the longest since 2014.

“Interest rates are off the table, but the picture is somewhat cloudy,” said Patrick Spencer, London-based vice chairman of equities at Robert W. Baird, which manages $151 billion.

Equities have failed to make headway as consumer-staples companies capped the worst drop in six weeks, offsetting gains in technology and energy shares. General Mills Inc. fell the most in almost two years, while Whole Foods Market Inc. and Kroger Co. lost more than 4 percent, spurred by a 14 percent drop in rival Sprouts Farmers Market Inc. after the grocer cut its profit outlook. Apple Inc. rose after executives unveiled new products, and Facebook Inc. advanced to a fresh high, extending its longest winning streak in five months.

A rally among exporters amid a weaker euro pushed European equities to near their highest level since April, while Germany’s DAX Index erased its annual decline. Automakers led the 0.3 percent advance in the Stoxx Europe 600 Index, which rose for the fourth time in five days. The DAX climbed 0.6 percent, with steelmaker ThyssenKrupp AG, chemical company BASF SE and Daimler AG advancing the most.

The MSCI Emerging Markets Index extended gains to the highest level since July 2015.

Futures on Asian stock gauges were mixed given the lack of a lead in from the U.S. Contracts on benchmarks in South Korea and Hong Kong climbed at least 0.1 percent in most recent trading, while those on Australia’s S&P/ASX 200 Index dropped 0.3 percent amid a retreat in iron-ore prices.

Nikkei 225 Stock Average futures slipped 0.2 percent to 16,960 in Osaka as the yen capped a third day of gains. Yen-denominated contracts on the Japanese index, however, rose 0.2 percent on the Chicago Mercantile Exchange.

Currencies

The Bloomberg Dollar Spot Index, which measures the U.S. currency against a basket of 10 peers, rose 0.1 percent after declining 1 percent on Tuesday.

Canada’s dollar weakened 0.3 percent after the central bank held its benchmark rate at 0.5 percent, a decision anticipated by all 25 economists surveyed by Bloomberg. The loonie had gained over the past few days amid dissipating expectations for a U.S. rate increase this year. The currency has lagged behind most peers this quarter, however, after a string of disappointing data on the Canadian economy.

Mexico’s peso posted the biggest decline among Latin American currencies, while the pound halted a five-day advance as reports showing an easing in U.K. house prices and manufacturing output highlighted lingering risks around the nation’s vote to leave the European Union.

Bonds

Benchmark 10-year Treasury yields rose by one basis point, or 0.01 percentage point, to 1.54 percent, according to Bloomberg Bond Trader data. Rates on two-year notes, the coupon maturity most sensitive to Fed policy expectations, also added one basis point, to 0.74 percent.

Following data Tuesday that showed the U.S. services sector grew at the slowest pace in six years in August, economists at Goldman Sachs Group Inc. lowered the probability of a September rate hike from the Fed to 40 percent from 55 percent, after making the opposite move last week.

“With slightly softer data and less ‘time on the clock,’ a rate increase this year now looks a bit less certain,” Jan Hatzius, chief economist at Goldman, wrote in a note to clients Tuesday. “While this is just one indicator, the surprise was meaningful, and there may have been some Fed officials feeling lukewarm on a September hike to begin with.”

In Europe, investors have strengthened bets that yields on longer-dated securities will fall relative to those on shorter-term debt in the past three days.

The so-called bull-flattening of the yield curve is fueled by speculation policy makers will step up their asset-purchase program or adjust rules to ease a perceived scarcity of bonds available to buy. With the European Central Bank’s current rules for quantitative easing excluding much of the shortest-dated debt from purchases, investors are building up positions in longer-term, higher-yielding securities as the Governing Council prepares to unveil its latest policy decision on Thursday.

Commodities

West Texas Intermediate crude rose 1.5 percent to $45.50 a barrel in New York, climbing for a third day. It was the highest settlement since Aug. 30.

Iran will support efforts to bring about fair prices for oil while it restores output lost amid sanctions, President Hassan Rouhani said Tuesday. Still, a production-freeze deal during informal producer talks this month is unlikely, said David Fyfe, Gunvor Group Ltd.’s head of market research and analysis. The market remains well supplied as U.S. stockpiles, already more than 100 million barrels above the five-year seasonal average, are forecast to have expanded for a third week.

“Most oil market analysts are very skeptical about the chances of an agreement,” said Mike Wittner, head of oil-market research at Societe Generale SA in New York. “I’m becoming less skeptical because the situation has changed since April. The main difference is that Iran has increased output to close their goal and appears amenable to the idea.”

Copper jumped 0.7 percent as a mine strike in Chile, the largest producer of the metal, helped ease concerns that global supplies will exceed demand. Gold for immediate delivery slipped 0.4 percent, halting a four-day rally as the dollar regained some ground.

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