Stocks Drop Amid Budget Deadlock; Treasuries, Gold Fall
U.S. stocks fell, halting a six-day rally in the Standard & Poor’s 500 Index, as the standoff in federal budget negotiations overshadowed a drop in jobless claims and growth in retail sales. Treasuries declined while precious metals led losses in commodities.
The S&P 500 lost 0.6 percent to 1,419.45 at 4 p.m. in New York, ending its longest rally since August, and Europe’s regional benchmark stock index retreated from an 18-month high. Ten-year Treasury yields rose for a third day, adding three basis points to 1.73 percent. Gold lost 1.2 percent and silver slid 4.2 percent as the Dollar Index (DXY) halted a three-day slump, with the U.S. currency stronger against 12 of 16 major peers.
Stocks turned lower as Republican House Speaker John Boehner said the White House is not serious about cutting spending. President Barack Obama said the negotiations are “still a work in progress.” Equities pared losses as the two planned to meet at the White House later today.
“We’ve had good economic data yet people are still anxious to see what comes out of the negotiations in Washington,” said Peter Jankovskis, who helps oversee $3 billion of assets as co- chief investment officer at Lisle, Illinois-based Oakbrook Investments LLC. He spoke in a telephone interview. “We’ll see a range-bound market until we get something definitive.”
The deadlock in talks to avoid the so-called fiscal-cliff of automatic spending cuts and tax increases has whipsawed markets since the Nov. 6 election, sending the S&P 500 down as much as 5.3 percent before a rebound that erased most of the decline.
Newmont Mining Corp. and Mosaic Co. dropped at least 1.4 percent to pace losses in commodity shares. Phillips 66, the crude refiner that was spun off from ConocoPhillips in May, dropped 1.6 percent on plans to raise as much as $400 million in an initial public offering. CVS Caremark Corp., the largest provider of prescription drugs in the U.S., climbed 2 percent after forecasting profit that beat analysts’ estimates. Best Buy Co. jumped 16 percent on a report that founder Richard Schulze will offer to take the company private by Dec. 15.
The S&P 500 rose as much as 0.2 percent in early trading and 10-year yields climbed more than four basis points. First- time claims for unemployment insurance declined by 29,000 to 343,000 last week, the lowest level since early October and adding to evidence the labor market is improving. U.S. retail sales increased 0.3 percent in November amid rebounding demand for automobiles and holiday shopping.
Treasuries remained lower following an auction of $13 billion of 30-year bonds that drew a yield of 2.917 percent, compared with a forecast of 2.889 percent in a Bloomberg News survey of six of the Federal Reserve’s 21 primary dealers. The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 2.5, versus an average 2.61 at the past 10 sales.
“It was a good set of data,” said Tom Porcelli, chief U.S. economist in New York at Royal Bank of Canada’s RBC Capital Markets unit, a primary dealer. “It appears the labor market got a little bit of a boost in November. Combine that with a better sales outcome, and the Treasury market reaction is appropriate.”
The Fed said yesterday it will buy $45 billion of Treasuries per month starting in January, in addition to its existing $40 billion monthly purchases of mortgage debt.
Interest rates will stay low “at least as long” as unemployment remains above 6.5 percent and if inflation is projected to be no more than 2.5 percent, the central bank said.
“The unemployment rate is declining just about 1 percent a year for the past two years, and could be not far off 6.5 percent in 12 months,” Fred Goodwin, a strategist at State Street Corp. in London, wrote in a research note. “The Fed is horrific at forecasting. They have completely underestimated how fast the unemployment rate would fall from the beginning of this cycle. Why are they suddenly going to get this right?”
While the Fed’s announcement sparked a brief rally in U.S. stocks yesterday, most of the gains were erased after Fed Chairman Ben S. Bernanke said that monetary stimulus can’t fully offset the effect of the fiscal cliff.
The Stoxx Europe 600 Index declined 0.4 percent, ending the longest run of gains in 19 months. Volvo AB (VOLVB), the world’s second- largest truckmaker, slid 4.3 percent as Renault SA sold its 6.5 percent stake for 12.8 billion kronor ($1.92 billion) to boost funding. Renault, France’s second-biggest automaker, climbed 1.5 percent.
Centamin Plc (CEY), a gold producer in Egypt, plunged 47 percent in London trading after halting production as a diesel dispute cut supplies to “critical levels.” Centamin said that it was sent an “illegal retrospective claim” by Egyptian General Petroleum Corp. for $65 million for diesel and won’t receive fuel for its Sukari mine until the amount is paid.
The Egyptian pound dropped as much as 0.3 percent to 6.1786 per dollar, the weakest level since Dec. 2004.
Silver, coffee, gasoline and natural gas declines led declines in 20 of the 24 commodities tracked by the S&P GSCI Index, which slipped 0.9 percent. New York-traded crude oil fell 1 percent to $85.89 a barrel.
The euro strengthened against 14 of 16 major peers after European Union finance ministers agreed to put the central bank in charge of all euro-area lenders in a deal that will pave the way for a firewall fund to provide direct bailouts.
Euro-area finance ministers approved the release of the next aid payment to Greece today, Luxembourg Prime Minister Jean-Claude Juncker told reporters in Brussels. He said money should start flowing as soon as next week.
The MSCI Emerging Markets was little changed following a six-day rally that drove it to the highest level since April 3.
The MSCI Asia Pacific (MXAP) Index climbed 0.2 percent for an 11th straight gain, the longest-winning streak in more than three years. China’s yuan appreciated the most since March, strengthened 0.2 percent to 6.2326 versus the dollar. The yen weakened against all but two of its 16 major peers, sliding most against the Swiss franc and South Korean won. The Bank of Japan (8301) is due to hold a policy meeting on Dec. 19-20.
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