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U.S. Stocks Retreat With Emerging Equities on China Data

By Callie Bost and Jeremy Herron
March 10, 2014 4:54 PM EDT 14 Comments
Coils of copper rod in Pasir Gudang, Johor, Malaysia.
Photographer: Munshi Ahmed/Bloomberg
Coils of copper rod in Pasir Gudang, Johor, Malaysia.

U.S. stocks declined with emerging-market equities while base metals drove commodities lower as an unexpected drop in Chinese exports fueled concern that growth in the world’s second-largest economy is moderating.

The Standard & Poor’s 500 Index (SPX) fell less than 0.1 percent from a record close, while the Dow Jones Industrial Average lost 0.2 percent. The MSCI Emerging Markets Index was down 1.2 percent by 4:52 p.m. in New York, the steepest drop in a week. China’s CSI 300 Index fell to a five-year low. Copper posted its biggest two-day drop in 28 months, while lead and zinc also retreated. Corn prices sank the most in three months while 10-year U.S. Treasuries rose for the first time in five days.

China’s exports dropped the most since 2009 in February, underlining the challenge faced by the government in achieving the 2014 growth target of 7.5 percent with lawmakers meeting in Beijing on economic policy. Japan’s economy grew less than estimated in the fourth quarter and the current-account deficit widened to a record in January. In Crimea, Ukraine began army drills as Russia’s Foreign Ministry warned of “lawlessness” in the former Soviet republic’s eastern provinces.

“We’re just waiting to see what goes on overseas with geopolitical situations and developments,” Stephen Carl, principal and head equity trader at New York-based Williams Capital Group LP, said by phone. “We need to keep an eye on overseas because we’re still waiting on a concise agreement in the Ukraine, but markets, as we saw last week, continue to grind higher despite that.”

Market Anniversary

The S&P 500 has surged more than 177 percent since falling to a bear-market low, reached five years ago as of yesterday. The measure rose 1 percent last week, buoyed by improving U.S. hiring and manufacturing data. The S&P 500’s valuation rose to almost 16 times member companies’ projected earnings, the most expensive level of the year.

Industrial stocks paced declines today among U.S. equities. Boeing Co. dropped 1.3 percent after a 777-200 plane disappeared with 239 passengers and crew during a Malaysia Airline System Bhd flight to Beijing March 8. Cliffs Natural Resources Inc. slid 3.8 percent and Freeport-McMoRan Copper & Gold Inc. lost 2.5 percent, among the biggest declines in the S&P 500.

Chiquita Brands International Inc. soared 11 percent after the owner of the namesake banana label agreed to buy Dublin-based Fyffes Plc in an all-stock transaction that values Fyffes at about $526 million.

China Trade

China’s overseas shipments plunged 18.1 percent in February, customs data showed March 8. Economists surveyed by Bloomberg predicted exports would rise by 7.5 percent. Premier Li Keqiang announced this year’s economic-growth goal at the opening of the annual meeting of the National People’s Congress in the capital last week, a target unchanged from last year.

“China is moderating but only very modestly,” Donna Kwok, a Hong Kong-based senior China economist at UBS AG, said in a Bloomberg TV interview. “Ultimately you need to wait for March data to really get a true sense of the underlying outlook. The PBOC is very consciously guiding the recent volatility. We see the default as a risk, as a shift in investors’ mindset.”

The Shanghai Composite Index (SHCOMP) fell 2.9 percent, the most since June and the lowest close since Jan. 20, to pace losses in emerging-market indexes. The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong slid 1.8 percent to a one-month low.

Commodities Slump

Malaysian Airline System fell 4 percent in Kuala Lumpur after the disappearance of its jet.

Brazil’s Ibovespa fell 1.5 percent to the lowest level since July as commodity exporters including iron-ore producer Vale SA tumbled. China is Brazil’s largest trading partner.

The S&P GSCI Index of commodities slid 1 percent. Copper futures dropped 1.7 percent in New York after touched the lowest level since June. The metal has fallen 5.8 percent in the past two sessions, the biggest two-day slump since October 2011. Lead retreated 0.6 percent and zinc fell 0.8 percent. China is the world’s largest consumer of industrial metals.

Gold for April delivery rose 0.2 percent to settle at $1,341.50 an ounce in New York, trading near a four-month high. West Texas Intermediate crude oil fell 1.4 percent to settle at $101.12 a barrel.

Corn futures for May delivery fell 2.2 percent to close at $4.7825 a bushel on the Chicago Board of Trade, the biggest drop for a most-active contract since Nov. 18.

Soybean Futures

The U.S. Department of Agriculture raised its outlook for world corn inventories before the 2014 Northern Hemisphere harvests by 0.7 percent to 158.47 million metric tons, topping analyst estimates.

Soybean futures for May delivery fell 2.7 percent to $14.1875 a bushel, the biggest decline since Jan. 21. Futures have climbed 9.8 percent this year.

The MSCI All-Country World Index dropped 0.4 percent today after completing a fifth weekly gain, the longest run of weekly advances since August.

Investors are also watching developments in Ukraine. The country’s armed forces are testing the combat-readiness of troops, the Defense Ministry said today on its website, reiterating the government’s desire for a peaceful end to the standoff in Crimea.

Russia has vowed to defend the ethnic Russians that dominate the Black Sea region. Crimea’s local government may use a March 16 referendum to leave Ukraine and join Russia.

European Stocks

The Stoxx Europe 600 Index fell 0.5 percent after posting its first weekly decline since January. Rio Tinto Group, the world’s second-largest mining company, fell 1.9 percent in London and BHP Billiton Plc lost 1.4 percent. A gauge of mining stocks in the Stoxx 600 decreased 2.2 percent for the biggest decline among 19 industry groups.

Iliad SA (ILD) surged 11 percent after Bouygues SA (EN) said it is in talks to sell some of its mobile-phone assets to the operator of the Free brand. Bouygues jumped 8.7 percent.

The Australian dollar depreciated 0.5 percent to 90.19 U.S. cents after advancing to 91.33 cents March 7, the strongest level since Dec. 11.

The People’s Bank of China weakened the yuan’s reference rate by 0.18 percent. The currency declined 0.2 percent to 6.1385 per dollar, according to China Foreign Exchange Trade System prices.

Spanish 10-year bonds advanced, pushing the yield six basis points lower to 3.30 percent, the least since January 2006. The yield on similar-maturity Portuguese securities tumbled for a fifth day to 4.45 percent.

Taper Pace

Yields on U.S. 10-year Treasuries fell one basis point to 2.78 percent, the first decline in five days. Economists projected U.S. payrolls would rise by 149,000 last month, with the bigger-than-expected 175,000-worker increase in data March 7 indicating the economy is starting to bounce back from frigid winter weather.

Federal Reserve Bank of Philadelphia President Charles Plosser, who votes on policy this year, said recent encouraging economic reports aren’t enough to change the pace of reductions in the central bank’s monthly bond purchases.

“The hurdle rate for change is pretty high in either direction,” Plosser said in a Bloomberg TV interview with Manus Cranny in Paris, referring to the Fed’s tapering of its stimulus program.

Fed Bank of Chicago President Charles Evans said in a speech today that he expects the U.S. economy to expand at a rate of 2.5 percent to 3 percent in 2014. Fed Chair Janet Yellen said last month the economy is robust enough to withstand measured cuts to monetary stimulus.

To contact the reporters on this story: Callie Bost in New York at cbost2@bloomberg.net; Jeremy Herron in New York at jherron8@bloomberg.net

To contact the editors responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net Jeremy Herron, Emma O’Brien

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