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U.S. Stocks Rise While Gold, Bonds Drop on Fed Minutes

By Jeremy Herron and Callie Bost
May 21, 2014 4:03 PM EDT 45 Comments
With economists paring forecasts for expansion in Japanese stimulus, Bank of Japan Governor Haruhiko Kuroda will speak to reporters today after the release of the bank’s policy statement.
Photographer: Tomohiro Ohsumi/Bloomberg
With economists paring forecasts for expansion in Japanese stimulus, Bank of Japan Governor Haruhiko Kuroda will speak to reporters today after the release of the bank’s policy statement.

U.S. stocks rose, erasing yesterday’s decline in the Standard & Poor’s 500 Index, while Treasuries and gold fell as Federal Reserve meeting minutes showed policy makers saw a muted risk of inflation from continued stimulus. Oil rallied to a one-month high.

The S&P 500 increased 0.8 percent at 4 p.m. in New York, rising for the third time in four days. The Bloomberg Dollar Spot Index added 0.1 percent, while the yield on 10-year Treasury notes climbed two basis points to 2.53 percent. Oil rallied 1.7 percent after a government report showed U.S. supplies tumbled last week. Gold fell 0.3 percent to $1,290.68.

The Fed’s April meeting minutes showed policy makers said continued stimulus to push unemployment lower doesn’t risk sparking an undesirable jump in the inflation rate. Officials are watching progress toward the goal of full employment as they consider the timing of the first interest-rate increase since 2006.

“There were no big surprises in the Fed minutes,” Darrell Cronk, deputy chief investment officer at Wells Fargo Private Bank, which manages $170 billion, said by phone. “There was more of the same and that means more dovish statements. We continue to think the domestic equity markets will climb higher. The fundamentals are good.”

The minutes also showed Fed officials discussed the need to improve their guidance on the likely path of interest rates. Participants agreed that “early communication” of their exit strategy “would enhance the clarity and credibility of monetary policy.”

Measured Steps

The central bank said last month the U.S. economy is showing signs of picking up and the job market is improving. It pared its monthly asset buying to $45 billion, the fourth straight $10 billion cut, and said further reductions in measured steps are likely. The Fed reiterated in the minutes that it will keep the key rate target near zero for a “considerable time” once it concludes the bond program.

Treasury 10-year yields gained today after reaching 2.47 percent on May 15, the lowest level since October. Three rounds of Fed bond purchases have helped send the S&P 500 up as much as 180 percent from a 12-year low in 2009.

The S&P 500’s advance today left the gauge about 0.5 percent below an all-time high reached on May 13. The Dow Jones Industrial Average (INDU) led U.S. indexes higher today, adding 1 percent as all but two members of the 30-stock gauge advanced. Goldman Sachs Group Inc. jumped 1.9 percent to lead gains among banks. Chevron Corp. rose 1.3 percent to pace energy shares.

Retail Results

Tiffany & Co. jumped 9 percent after the world’s second-largest luxury jewelry seller reported profit that exceeded analysts’ estimates. American Eagle Outfitters Inc. and PetSmart Inc. sank at least 6.4 percent after reporting results that disappointed investors.

“The equity markets are moving higher today based off of the expectation of stronger economic growth,” Chad Morganlander, a fund manager at Stifel Nicolaus & Co., which oversees $160 billion, said by phone from Florham Park, New Jersey. “Economic growth as well as earnings will begin to accelerate in the warmer months, which will increase investors’ risk appetites.”

The dollar added 0.1 percent to $1.3683 per euro. The yen was little changed at 101.43 per dollar, after reaching 100.82, the strongest level since Feb. 5. Japan’s currency appreciated 0.2 percent to 138.63 per euro after touching 138.15, the most since Feb. 6.

Currency Moves

The yen reached a three-month high versus the dollar earlier after the Bank of Japan refrained from expanding stimulus that tends to weaken a currency and said it projects a moderate economic recovery will continue. Japan’s currency strengthened to as much as 100.82 per dollar, before paring.

The pound gained versus 15 of its 16 major peers as U.K. retail sales increased for a third month in April, stoking speculation the Bank of England will move closer to raising interest rates as the economy strengthens. The BOE said in notes from its last meeting that the case for a rate boost is strengthening.

Italian and Spanish government bonds rose, ending a two-day selloff that was triggered by rising support among voters for anti-EU parties before May 22-25 parliamentary elections. Italy’s 10-year yield dropped from the highest level in seven weeks, and the rate on similar-maturity Spanish (GSPG10YR) bonds declined from a one-month high.

Europe Assets

U.K. 10-year gilt rates climbed and the pound rallied after the Bank of England said arguments favoring a rate increase are growing.

The Stoxx Europe 600 Index added 0.6 percent to halt a two-day slide. The gauge closed 0.5 percent from its highest level in more than six years, as all but one of the 19 main groups in the index advanced today.

A.P. Moeller-Maersk A/S (MAERSKA) rose 3.8 percent after Denmark’s biggest company boosted its outlook for 2014 underlying profit. BNP Paribas SA, France’s largest bank, lost 1.3 percent after a person familiar with the matter said U.S. authorities are seeking more than $5 billion to settle investigations related to sanctions.

Euro-area consumer confidence increased more than economists forecast in May, as inflation held at less than half the European Central Bank’s target.

Gazprom Deal

Russia’s Micex Index gained 1 percent for a fourth day of gains that left it at the highest level since Feb. 28. OAO Gazprom climbed as much as 2.2 percent after the natural-gas company signed a $400 billion supply deal with China. Gazprom has rallied 13 percent this month.

President Vladimir Putin is turning to China to bolster Russia’s economy as relations sour with the U.S. and European Union because of the crisis in Ukraine.

The S&P GSCI (SPGSCI) gauge of 24 commodities rose 0.7 percent, the fourth consecutive advance that left the index at the highest since April 29. Palladium futures rose to a 33-month high on concerns that supplies may be restricted.

West Texas Intermediate oil jumped to $104.07 a barrel in New York, the highest settlement since April 21. Crude stockpiles dropped 7.23 million barrels in the week ended May 16, the Energy Information Administration reported.

Copper fell for a second day in London. losing 0.8 percent to settle at $6,831 a metric ton, after Moody’s said house sales are set to slow in China, the world’s biggest consumer of the metal. Nickel declined 1.8 percent.

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

To contact the editors responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net Jeremy Herron, Claudia Carpenter

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