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Yen Extends Jump Amid Rout After Asian Index Futures Sink

By Lu Wang and Whitney Kisling
January 27, 2014 4:44 PM EST 17 Comments
A financial trader monitors data on computer screens on the trading floor inside the Amsterdam Stock Exchange in Amsterdam.
Photographer: Jasper Juinen/Bloomberg
A financial trader monitors data on computer screens on the trading floor inside the Amsterdam Stock Exchange in Amsterdam.

Treasuries fell before the Federal Reserve’s meeting tomorrow and commodities slid after data on U.S. home sales missed forecasts. U.S. stocks slipped, with the Standard & Poor’s 500 Index extending its biggest weekly drop since 2012 as emerging-market shares declined.

The U.S. 10-year yield climbed three basis points to 2.75 percent as of 4:43 p.m. in New York. The S&P 500 lost 0.5 percent to 1,781.56. The MSCI Emerging Markets Index slid 1.9 percent and Chinese shares in Hong Kong lost 2.2 percent. The pound rose against 14 of its 16 major peers. Turkey’s lira rallied, reversing earlier losses of more than 2 percent, as the central bank said it would meet tomorrow. Natural gas sank 6.5 percent and oil fell, leading declines among commodities.

Developing-nation stocks have had the worst start to a year since 2009 and currencies from Turkey to South Korea tumbled amid signs growth is slowing in China. Fed policy makers are preparing to review further cuts to stimulus at its two-day meeting. Caterpillar Inc., the largest maker of mining and construction equipment, forecast earnings that topped analysts’ estimates. Apple Inc. (AAPL) fell in extended U.S. trading after projecting lower-than-expected second-quarter revenue.

“The market is volatile and it just feels like a lot of scared buyers are out there,” Sandy Villere III, a New Orleans-based fund manager at Villere & Co., said in a phone interview. His firm oversees $3.2 billion. “We don’t see a major pullback so we’re using this opportunity to buy good-quality, growth stocks at reasonable prices.”

Home Sales

Purchases of new homes in the U.S. fell more than forecast in December, ending the industry’s best year since 2008 on a sour note. Sales decreased 7 percent to a 414,000 annualized pace, lower than any estimate of economists surveyed by Bloomberg, after a 445,000 rate in November that was weaker than previously calculated, the Commerce Department reported.

Fed officials have been scrutinizing economic data to determine the timing and pace of any reductions to asset purchases. The central bank, which starts a two-day meeting tomorrow, decided at its December gathering to begin cutting its monthly bond buying by $10 billion to $75 billion.

The benchmark U.S. 10-year yield increased for the first time in three days after dropping last week amid demand from investors fleeing emerging-market losses. The Treasury will sell $15 billion of floating-rate two-year notes in an inaugural sale Jan. 29, offering its first added security in 17 years.

Caterpillar (CAT) jumped 5.9 percent, halting a six-day drop after announcing a stock buyback and forecasting earnings above analysts’ estimates amid growth in demand for construction equipment. Shares of Apple sank about 6 percent in after-market trading. The company forecast second-quarter sales of $42 billion to $44 billion, trailing the median analyst estimate of $46.1 billion. Sales of iPhones were also below projections.

Technology Shares

The Nasdaq-100 Index declined 0.9 percent and the Dow Jones Industrial Average (INDU) lost 0.3 percent to the lowest close since Dec. 13. Google Inc. slipped 2 percent while Facebook Inc., the world’s largest social network, dropped 1.7 percent. Both companies are scheduled to report results later this week.

In Europe, Vodafone Group Plc (VOD) fell 3.9 percent after AT&T Inc. said it doesn’t intend to make an offer for the company. BG Group sank 14 percent after the oil and gas producer said 2013 earnings would be lower than estimated.

Of the 126 companies in the S&P 500 to have posted earnings so far this season, 74 percent have beaten analysts’ estimates for profit and 68 percent have exceeded projections for sales, according to data compiled by Bloomberg.

Equity Volatility

Stocks in the gauge probably increased their earnings per share by 6.6 percent in the fourth quarter of 2013 and their revenue by 2.6 percent, analysts’ estimates compiled by Bloomberg show.

The Chicago Board Options Exchange Volatility Index slipped 4 percent to 17.42. The gauge of S&P 500 options known as the VIX (VIX) surged 46 percent last week, its biggest gain since May 2010.

“The speed at which markets have declined is a surprise,” said Adrian Zuercher, a Hong Kong-based global strategist at Credit Suisse Hong Kong Ltd., part of the asset-management unit that manages about $400 billion. “The emerging-market story of the past 10 years as we knew it is over. Fed tapering will reduce global liquidity and now is the time to differentiate.”

More than $995 billion has been erased from the value of emerging-market equities since the Fed signaled in May that it could start scaling back asset purchases. The Shanghai Composite Index retreated 1 percent today. Indonesia’s rupiah slipped 0.4 percent against the dollar and India’s rupee lost 0.7 percent.

Lira, Pound

The lira advanced 2.3 percent to 2.2834 per dollar after earlier weakening to a record-low 2.39. The central bank said it would “take the necessary policy measures” to stabilize prices at an extraordinary meeting tomorrow.

The pound approached a 2 1/2-year high versus the dollar before data tomorrow analysts say will mark the first full year the U.K. economy expanded in every quarter since the financial crisis began in 2007. The pound gained 0.6 percent to $1.6576.

Ukrainian bonds fell, extending the biggest weekly drop on record, as street protests intensified after opposition parties rejected government proposals to end a two-month stand off. The hryvnia weakened to a four-year low. The yield on dollar-denominated sovereign debt maturing in April 2023 rose 19 basis points, or 0.19 percentage point, to 9.75 percent.

Natural gas futures slid from the highest price in almost four years, as forecasts showed mostly normal weather on the East Coast in early February. Gas for February delivery fell to $4.708 per million British thermal units after exceeding $5 last week for the first time since 2011.

West Texas Intermediate crude oil fell 1.1 percent to $95.57 a barrel. The S&P GSCI index of raw materials snapped a five-day advance, declining 1.1 percent.

To contact the reporters on this story: Whitney Kisling in New York at wkisling@bloomberg.net; Lu Wang in New York at lwang8@bloomberg.net

To contact the editor responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net

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