Bloomberg News

Stocks, Treasuries, Gold Fall on Fed; Dollar Strengthens

April 03, 2012

U.S. factory orders probably rose 1.5 percent in February, rebounding from a drop, economists surveyed said before today’s report. Photographer: Ty Wright/Bloomberg

U.S. factory orders probably rose 1.5 percent in February, rebounding from a drop, economists surveyed said before today’s report. Photographer: Ty Wright/Bloomberg

U.S. stocks slid, while Treasuries and gold tumbled and the dollar rallied, as Federal Reserve minutes showed central bankers saw no need for more monetary stimulus unless economic growth slows.

The Standard & Poor’s 500 Index lost 0.4 percent to close at 1,413.38 at 4 p.m. in New York, retreating from an almost four-year high. The Dow Jones Industrial Average decreased 64.94 points to 13,199.55. Yields on 10-year Treasury notes surged 11 basis points to 2.30 percent after falling as much as three basis points. The Dollar Index, a gauge of the currency against six major peers, climbed 0.7 percent. Gold, silver and oil lost more than 1 percent to lead the S&P GSCI Index (SPGSCI) of commodities down 0.3 percent.

Minutes from the March 13 Fed policy meeting showed the Fed is holding off on increasing monetary accommodation unless the U.S. economic expansion falters or prices rise at a rate slower than its 2 percent target. The S&P 500 surged 1.4 percent on March 26, its second-biggest gain of the year, after Fed Chairman Ben S. Bernanke said that stimulative monetary policy is still need to spur job growth.

“Bernanke’s been clear that he stands ready to support the economy if needed and he’s certainly not in favor of removing the stimulus that we have, but there hasn’t been any indication from him that he’s planning to go another round,” Peter Jankovskis, who helps manage about $3 billion at Oakbrook Investments in Lisle, Illinois, said in a telephone interview.

Four-Year Highs

The S&P 500 yesterday closed at the strongest level since May 2008 and the Dow reached the highest since December 2007.

Gauges of commodity producers and financial companies led declines in nine of the 10 main industry groups in the S&P 500 today. Bank of America Corp., Hewlett-Packard Co., JPMorgan Chase & Co. and Exxon Mobil Corp. fell at least 1.4 percent to pace losses in the Dow.

General Motors Co. sank 4.6 percent after posting vehicle sales that trailed estimates. Apple Inc. advanced 1.7 percent to a record $629.32 after two analysts said the stock could surge to $1,000.

Wall Street strategists cut their recommended holdings in U.S. equities to almost the lowest level since 1998, a sign that the six-month stock rally may have more room to go, according to Bank of America Corp.

Strategist Calls

Strategists advised investors to reduce equity allocations in six out of the past eight months, with money earmarked to stocks falling to 55.8 percent in March. The level was the lowest since January 1998, except for the seven months ended July 2009, and compared with a 15-year average of 60.7 percent, according to data compiled by Bloomberg and Bank of America.

Savita Subramanian, head of U.S. equity and quantitative strategy at Bank of America, said the decline in recommended stock holdings signaled rising pessimism that she considers as a contrarian indicator because investors who have sold shares now have more money to purchase stocks.

Stocks extended losses today as the Fed minutes showed decreased urgency to add more monetary stimulus, with no sentiment expressed for additional easing without a deterioration in conditions.

The Fed last month affirmed its plan, first announced in January, to hold interest rates near zero through late 2014 as the economy may fail to grow fast enough to continue bringing down the unemployment rate. Bernanke has defended the pledge as appropriate since the meeting, saying that despite some improvement in the economy it’s “far too early to declare victory.”

Commodities Retreat

Among the 24 commodities tracked by the S&P GSCI index, 15 retreated. Gold futures tumbled 1.9 percent to $1,647.60 an ounce, silver sank 1.4 percent and oil slid 1.2 percent to $104.01 a barrel.

The dollar strengthened against 13 of 16 major peers, rallying 0.9 percent against the yen and 0.6 percent to $1.3236 versus the euro. Two-year Treasury yields increased four basis point to 0.37 percent and 30-year rates added nine points to 3.43 percent.

The Fed minutes will cause even more scrutiny of the government’s monthly jobs report on April 6, according to Alan Ruskin, New York-based global head of Group-of-10 currency strategy at Deutsche Bank AG. The median forecast of economists in a Bloomberg survey projects growth of 201,000 jobs in March. Ruskin said a gain of less than 150,000 jobs would “quickly reawaken QE expectations.”

“Ironically, the more bonds sell-off now, the more they will be forced to contemplate such actions,” Ruskin wrote in a note to clients. “It seems clear that bonds in particular are vulnerable and need serious support from weak employment data. Equities generally are likely to be more resilient,” he said, since better-than-expected jobs data may overshadow reduced odds the Fed will buy more bonds to suppress interest rates.

Factory Orders

Earlier losses in U.S. stocks came amid concern the rally that sent the S&P 500 to an almost four-year high has outpaced prospects for economic growth. Commerce Department data showed orders to U.S. factories climbed 1.3 percent in February, trailing the median economist forecast for an increase of 1.5 percent.

European markets closed before the release of the Fed minutes, with the Stoxx Europe 600 Index (SXXP) slipping 1.1 percent. Banca Popolare di Milano Scarl led a gauge of banking shares lower, sliding 6.6 percent. Cairn Energy Plc advanced 4 percent as the U.K. oil company exploring in Greenland agreed to buy Agora Oil & Gas AS to expand in the North Sea.

Germany’s DAX Index slipped 1.1 percent today, while benchmark gauges in Italy and Spain slid more than 2 percent.

DAX Rally

German stocks are posting their best start to a year relative to the U.S. since 2006 as investors bet companies in Europe’s biggest economy will benefit most from improving global growth. The DAXK Index (DAXK), a German equities gauge that strips out gains from dividends, surged 19 percent in 2012 through yesterday after sinking to the cheapest valuation in at least six years in 2011. That’s the largest advance since 1998 and 6.3 percentage points more than the S&P 500’s increase, data compiled by Bloomberg show.

Germany’s benchmark DAX Index topped every developed market tracked by Bloomberg this year through yesterday as Citigroup Inc. and BNP Paribas SA raised forecasts for economic expansion after efforts to tackle Europe’s debt crisis succeeded in bringing down borrowing costs from record highs.

The ECB will keep its benchmark rate unchanged at a record low 1 percent tomorrow, according to the median of 57 economist forecasts in a Bloomberg News survey.

‘Haircut’ Concern

Bonds in Portugal, Spain and Italy extended losses after Bill Gross, who runs the world’s biggest bond fund, said Portugal was headed for a debt “haircut” -- a restructuring that imposes losses for investors -- after yields on the nation’s 10-year note today touched the highest level in a week.

Spanish 10-year bonds fell for the first time in three days after a report showed registered unemployment rose for an eighth month. Spain’s public debt will rise to a record this year as it sells almost 37 billion euros ($49 billion) of bonds to finance a budget deficit that was nearly three times the euro-area limit last year.

Total borrowing will reach 79.8 percent of gross domestic product as the country breaches the European Union’s deficit rules for a fifth year. That’s the highest since before the country’s return to democracy in 1978 and up from 68.5 percent last year, according to the 2012 budget that the government presented to Parliament today in Madrid.

The yield on Spain’s 10-year securities climbed 10 basis points to 5.45 percent. Italy’s 10-year bond yield rose five basis points to 5.16 percent and Portugal’s yield increased 17 basis points to 11.84 percent.

The MSCI Emerging Markets Index gained 0.6 percent, taking its three-day increase to 2 percent. The Jakarta Composite Index jumped 1.2 percent as PT Bank Danamon Indonesia surged 39 percent after DBS Group Holdings Ltd. offered to buy the lender for about $7.2 billion. Taiwan’s Taiex index sank 1.3 percent on concern the government may impose capital-gains tax on stock trades. The Micex Index advanced 1.5 percent in Moscow and the ISE National 100 Index climbed 0.5 percent in Turkey.

To contact the reporters on this story: Lu Wang in New York at lwang8@bloomberg.net; Inyoung Hwang in New York at ihwang7@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net


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