Treasuries, Dollar Fall, Commodities Rally as U.S. Stocks Drop
April 08, 2011, 4:17 PM EDTBy Michael P. Regan and Mark Shenk
April 8 (Bloomberg) -- Treasuries fell and the dollar slid, sending commodity indexes to two-year highs, amid speculation the Federal Reserve will lag behind other central banks in lifting interest rates. Gold and tin rose to records and oil gained to a 30-month high above $112 a barrel. U.S. stocks fell.
The 10-year Treasury note yield increased four basis points to 3.59 percent as traders bet on higher inflation. The Dollar Index, a gauge of the currency against six major peers, slumped 0.8 percent to the lowest level since December 2009. Gold for June delivery rose as much as 1.2 percent to $1,476.40 an ounce and oil climbed 2.3 percent as the Thomson Reuters/Jefferies CRB Index of commodities climbed for a seventh straight day to reach the highest level since September 2008.
Declines in the dollar, Treasuries and stocks came as measures of expectations for consumer prices surged and the U.S. government moved closed to shutting down after lawmakers failed to agree on a federal budget. Fed Bank of Dallas President Richard Fisher said policy makers face a risk of providing stimulus for too long and should weigh curtailing a $600 billion bond-purchase plan. Airline and consumer shares slid on concern higher energy costs will hurt profits.
“Anyone who uses fuel to get from point A to point B is going to be negatively impacted,” said Carl Larry, president of Oil Outlooks & Opinions LLC in Houston. “Airlines will take a hit, as will delivery companies. Services will have to raise prices, which will hurt the consumer and show up in the economy.”
Commodity Rally
Brent oil for May delivery climbed as much as 3.4 percent to $126.87 a barrel, the highest since August 2008, as skepticism that Libyan output will rebound when fighting ends also boosted prices. Tin jumped to an all-time high of $33,100 a metric ton in London and copper advanced 1.9 percent to $4.5015 a pound in New York. Heating oil, nickel, wheat and silver climbed more than 2.8 percent to lead gains in the CRB index.
The dollar weakened against all 16 major counterparts, losing more than 1 percent versus the Norwegian krone and Swedish krona. The European Central Bank yesterday increased its benchmark rate to 1.25 percent from a record low of 1 percent, in line with the prediction by all 57 economists in a Bloomberg survey. ECB President Jean-Claude Trichet said the increase, the first since 2008, wasn’t necessarily the “first of a series.”
The 10-year Treasury capped a third weekly drop, the longest run of declines this year. President Barack Obama said he hopes lawmakers can reach a last-minute deal today to avert a government shutdown after a third round of talks with congressional leaders last night failed to end an impasse over the federal budget.
Budget Feud
Democrats said today they agreed to cut $38 billion in federal spending this year and resolved dozens of policy directives sought by Republicans. The only remaining point was Republicans’ insistence on canceling funding for Planned Parenthood, which offers abortions, said Senate Majority Leader Harry Reid.
The difference between yields on 10-year notes and Treasury Inflation Protected Securities, a gauge of traders’ expectations for consumer prices over the life of the debt, widened to 2.66 percentage points, the most since 2006 on a closing basis. The measure, known as the 10-year break-even rate, was as high as 2.74 percent in 2006 prior to the U.S. recession that began in December 2007 and lasted for 18 months.
U.S. Stocks Slip
About five stocks retreated for every two that rose on U.S. exchanges. United Continental Holdings Inc. slumped 5.8 percent and the NYSE Arca Airlines Index slid to an almost seven-month low as higher energy prices threatened profits. United Parcel Service Inc. and FedEx Corp. lost at least 1 percent, while Macy’s helped lead retailers lower with a 2.2 percent drop.
Stocks climbed in Asia and Europe as concern about yesterday’s earthquake in Japan eased and exports in Germany, Europe’s largest economy, grew more than forecast in February as the global recovery boosted demand. No unusual conditions were observed at Tokyo Electric Power Co.’s Fukushima Dai-Ichi nuclear plant after a magnitude-7.1 temblor in Japan killed two people and injured 93 in the biggest aftershock since the day of the March 11 disaster.
BHP Billiton Ltd., the world’s biggest mining company, rose 2.7 percent and Rio Tinto Group gained 3.2 percent. Vallourec SA jumped 4.7 percent as Credit Suisse Group AG recommended shares of the steel-pipe maker.
Intesa Sanpaolo SpA, the Italian bank, fell 1.1 percent as the European Banking Authority prepared to announce which types of capital it will accept for this year’s stress tests. TNT NV tumbled 13 percent as the Dutch mail carrier that’s planning to spin off its express division said the unit’s profit fell.
Toyota Climbs
The MSCI Asia Pacific Index rallied 0.9 percent. Toyota Motor Corp., the world’s largest carmaker, gained 1.4 percent in Tokyo after saying it will resume output at its factories in Japan on April 18.
The euro completed for its second consecutive weekly gain versus the dollar and extended its strongest start to a year on record. The yen weakened against 15 of 16 of its most-traded peers, sliding at least 1 percent versus the euro and currencies of Norway and Sweden.
The Australian dollar climbed as much as 0.8 percent to $1.0552, the strongest level since the currency was allowed to trade freely in 1983.
The MSCI Emerging Markets Index of stocks in developing markets climbed 0.4 percent, set for its highest closing level since June 2008, and its third weekly increase. China’s Shanghai Composite Index gained 0.7 percent. Developing-nation equity funds attracted $5.7 billion in the week ended April 6, the most since mid-October, Citigroup Inc. reported, citing data from EPFR Global.
--With assistance from Daniel Kruger, Cordell Eddings and Rita Nazareth in New York, Andrew Rummer, Dan Tilles, Jason Webb and Alex Xydias in London. Editors: Michael P. Regan, Nick Baker
To contact the reporters on this story: Michael P. Regan in New York at mregan12@bloomberg.net; Mark Shenk in New York at mshenk1@bloomberg.net.
To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net
