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Stocks Fall With Treasuries as Dollar Gains on Fed, IMF

By Lu Wang and Nick Taborek
February 19, 2014 4:43 PM EST 63 Comments
A trader walks on the trading floor as the DAX Index curve is seen beyond at the Frankfurt Stock Exchange in Frankfurt.
Photographer: Ralph Orlowski/Bloomberg
A trader walks on the trading floor as the DAX Index curve is seen beyond at the Frankfurt Stock Exchange in Frankfurt.

U.S. stocks fell with Treasuries while the dollar gained as Federal Reserve meeting minutes indicated stimulus cuts would likely continue in measured steps and the International Monetary Fund warned of risks to global growth. Ukraine’s bonds tumbled while U.S. natural gas jumped.

The Standard & Poor’s 500 Index (SPX) fell 0.7 percent by 4:43 p.m. in New York, after climbing to within one point of a record closing high. Ten-year Treasury yields rose two basis points to 2.73 percent. The Bloomberg Dollar Spot Index gained the most in three weeks. Ukrainian June 2014 bond yields jumped 19 percentage points to a record 42 percent. Natural gas climbed to the highest level since 2008, coffee surged to a 15-month high while silver ended its longest rally since at least 1968.

The Fed said cuts to bond purchases should continue in “the absence of an appreciable change in the economic outlook,” minutes of the January meeting showed. Risks of prolonged market turmoil in emerging markets and deflation in the euro area are threatening the world’s economic prospects, according to the IMF. Reeling from the bloodiest clashes in a three-month standoff with protesters, Ukrainian President Viktor Yanukovych granted sweeping powers to the army and police.

“So far tapering seems to be orderly and they seem to be committed to it,” Erik Davidson, the San Francisco-based deputy chief investment officer for Wells Fargo Private Bank, which oversees $170 billion, said by phone. “While it is data-dependent, it is long-term data dependent, certainly not short-term, noise data-dependent. Investors should recognize that this is the beginning of a very very very long process.”

Jobless Rate

At the meeting, the last under former Chairman Ben S. Bernanke, Fed policy makers reduced the bank’s monthly asset purchases by $10 billion to $65 billion, citing improved economic growth.

Policy makers are seeking to provide clarity on how they plan to proceed with their program of economic support after the unemployment rate dropped last month to 6.6 percent, the lowest level in more than five years. The minutes show Fed officials were divided on how to clarify their guidance.

U.S. equities rallied last week as new Fed Chair Janet Yellen pledged to maintain Bernanke’s polices by scaling back stimulus in “measured steps.” She said that given broad improvement in the job market, only a notable change in the economic outlook would prompt the central bank to slow the pace of tapering.

Ten-year Treasury note yields rose after the release of minutes. They fell earlier in the session, touching 2.67 percent, the lowest level since Feb. 11.

‘Move Forward’

“The Fed remains confident on where we are with the economy and will continue to move forward, which is pressuring rates to go higher,” said Sean Simko, a money manager who oversees $8 billion at SEI Investments Co. in Oaks, Pennsylvania. “Due to all the disruptions and the geopolitical issues taking place now, the expectation was for more of a dovish tone to the comments than what really came out.”

The S&P 500 declined today after approaching its all-time closing high of 1,848.38, reached last month. Three rounds of central bank stimulus have helped push the S&P 500 as much as 173 percent higher from a 12-year low touched in 2009.

U.S. housing starts fell to an 880,000 annualized rate following December’s revised 1.05 million, the Commerce Department reported today in Washington. The decrease was the biggest since February 2011. The median estimate of 84 economists surveyed by Bloomberg called for 950,000.

U.S. Movers

Investors have dismissed weaker-than-forecast economic data including January’s payrolls figures over the past two weeks, helping U.S. stocks recover from their worst start of a year since 2010. The S&P 500 had slumped as much as 5.8 percent since reaching a record Jan. 15 as concern over Fed tapering fueled an exodus in emerging markets. The index has since climbed 5 percent, paring its 2014 loss to 1.1 percent.

U.S. Steel Corp. sank 7 percent today after the Department of Commerce rejected its claim that South Korea is selling steel tubing in the U.S. below cost. JPMorgan Chase & Co. and Bank of America Corp. lost at least 1.6 percent as financial shares led declines.

Nabors Industries Ltd., CF Industries Holdings Inc. and Garmin Ltd. jumped at least 5.1 percent after earnings beat analysts’ estimates. About 75 percent of S&P 500 companies that have posted results for the fourth quarter have beaten estimates for profit and 64 percent have exceeded sales projections, according to data compiled by Bloomberg.

Hedge-fund manager David Einhorn cautioned against betting on the extension of a U.S. stock-market rally that he said was fueled by conditions that are difficult to sustain.

Bets Off

“In 2013, the market rewarded many companies for beating earnings after they had lowered guidance,” Einhorn said today on a conference call discussing results at Greenlight Capital Re Ltd. (GLRE), the Cayman Islands-based reinsurer where he is chairman. “This trend is not likely to continue indefinitely.”

The S&P 500 trades at 17 times reported operating earnings, near the most expensive level since 2010, according to data compiled by Bloomberg. The ratio increased about 20 percent in 2013, the biggest jump in four years, while corporate profits rose 5.6 percent. The S&P 500 rallied 30 percent last year.

A January global growth forecast of 3.7 percent for this year, from 3 percent in 2013, hinges on recent market volatility from Turkey to Brazil being short lived, IMF staff wrote in a note prepared for central bankers and finance ministers from the Group of 20.

Emerging Markets

Rising political tensions from Ukraine to Thailand, China’s slowdown and the Fed’s tapering of its stimulus have resulted in falling stocks and currencies in emerging markets. Less than two months into 2014, global investors pulled more money out of emerging-market stock and bond funds than the total amount they retracted last year.

Ukraine’s benchmark equity gauge slid 3.2 percent today, extending yesterday’s 4.2 percent decline. The hryvnia tumbled 1.2 percent to 8.95 per dollar, the weakest level in five years.

President Yanukovych moved to quell a growing insurgency by granting sweeping powers to the army and police after a region declared independence from his government, risking wider conflict. At least 26 people died and hundreds were injured in clashes, which culminated in a police attempt to clear their main protest camp in central Kiev, which was repelled.

European Union foreign ministers meet tomorrow to weigh “all possible options,” including “restrictive measures against those responsible for repression,” the bloc’s foreign policy chief, Catherine Ashton, said in an e-mailed statement.

Forint, Zloty

Hungary’s forint weakened 1 percent against the euro, extending its two-day drop to 1.7 percent. The central bank yesterday lowered its key rate more than economists predicted. The ruble lost 1.1 percent versus the dollar. Russia canceled a bond auction for the third time in less than a month as the ruble declined and debt yields climbed.

The Polish zloty lost 0.5 percent per euro and South Africa’s rand slid 1.5 percent versus the dollar. The Thai baht capped its biggest two-day loss in two months.

A Bloomberg gauge of 20 developing-nation currencies fell for a second day, losing 0.5 percent. The MSCI Emerging Markets Index of stocks dropped 0.2 percent.

The Bloomberg Dollar Spot Index, which tracks the currency against 10 major counterparts, added 0.3 percent to 1,020.16, the steepest increase since Jan. 30. The dollar advanced 0.2 percent to $1.3733 per euro.

The yen was little changed at 102.30 per dollar after dropping 0.4 percent yesterday, and Japan’s currency strengthened 0.2 percent to 140.50 per euro.

Commodities Rally

The S&P GSCI gauge of 24 commodities advanced 0.6 percent, the sixth consecutive increase and the longest rising streak since Aug. 16. U.S. natural gas climbed 11 percent to the highest level since 2008 as forecasts show cold air will cover most of the lower 48 U.S. states from Feb. 24 through March 5. Prices have jumped 45 percent this year as waves of arctic air boosted demand for the heating fuel.

Silver dropped 1.9 percent, after rallying 14 percent over the past 13 days.

The S&P GSCI Agriculture Index of eight commodities climbed 1.1 percent, the eighth straight daily gain and the longest advancing streak since 2011. Drought has scorched fields in Brazil, the world’s largest exporter of soybeans, coffee and sugar. Coffee futures jumped 11 percent.

Gold slipped 1.1 percent in electronic trading on the Comex in New York after the Fed minutes were released. Futures settled 0.3 percent lower in regular trading before the minutes. The metal reached $1,332.40 yesterday, the highest level since Oct. 31.

Asian Futures

West Texas Intermediate crude oil increased to a four-month high on speculation that a report tomorrow will show inventories at Cushing, Oklahoma, dropped for a third week. Futures rose 0.9 percent to $103.31 a barrel.

The Stoxx Europe 600 Index added 0.1 percent, reversing an earlier drop of as much as 0.6 percent in the final 90 minutes of trading. Volume in Europe’s Stoxx 600 was 18 percent less than the 30-day average, according to data compiled by Bloomberg.

Carlsberg A/S (CARLB) climbed 7.1 percent after the world’s fourth-biggest brewer posted earnings that beat analysts’ projections. Steel-pipe maker Tenaris SA fell 6.9 percent and Vallourec SA lost 4.5 percent after the U.S. Commerce Department preliminarily set tariffs on imports of steel tubing from eight countries.

The MSCI Asia Pacific Index was little changed as Japanese stocks and Korean stocks retreated while Hong Kong’s Hang Seng Index gained 0.3 percent. Futures on Japan’s Nikkei 225 Stock Average fell at least 0.4 percent in Osaka and Chicago, while futures on indexes in Australia and South Korea also fell.

To contact the reporters on this story: Lu Wang in New York at lwang8@bloomberg.net; Nick Taborek in New York at ntaborek@bloomberg.net

To contact the editors responsible for this story: Stuart Wallace at swallace6@bloomberg.net; Lynn Thomasson at lthomasson@bloomberg.net

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