Bloomberg News

U.S. Stocks Fall, Bonds Rise Amid Stimulus Speculation

August 23, 2012

Gold Climbs to 16-Week High as Won Gains on U.S. Stimulus Bets

Minutes of the U.S. Federal Reserve’s last meeting showed many members favored more stimulus unless the pace of the economic recovery picks up. Photographer: Sergio Dionisio/Bloomberg

U.S. and European stocks fell as investors weighed whether central banks will ease monetary policy further amid concern over the euro-area crisis. Commodities rose a fourth day, the dollar fell to a two-month low and Treasury yields touched the lowest in more than a week.

The Standard & Poor’s 500 Index (MXEF) fell 0.5 percent at 10:07 a.m. New York time. European stocks reversed an earlier gain, dropping 0.6 percent. The S&P GSCI gauge of 24 commodities jumped 0.5 percent as gold reached a three-month high and oil approached $100 a barrel in New York. The Dollar Index declined for a fourth day and Treasury 10-year yields fell to 1.67 percent. Spain’s 10-year yield increased 14 basis points.

“People aren’t willing to invest,” said Stephen Hammers, the chief investment officer at Brentwood, Tennessee-based Compass EMP Funds, which manages about $1 billion in assets. “Any time you get news we might get additional stimulus, you’ll have some short-term pick up in the markets but it doesn’t last.”

Minutes of the U.S. Federal Reserve’s last meeting showed many members favored more stimulus unless the pace of economic recovery picks up. A report today showed China’s manufacturing may contract at a faster pace in August, a day after People’s Bank of China Governor Zhou Xiaochuan said adjustments to interest rates and banks’ reserve requirements are still possible. Purchases of new U.S. homes rose more than projected in July to match a two-year high.

Deepest Crises

German Chancellor Angela Merkel said Europe is in one of its deepest crises and while the path to a solution is inevitably “long and arduous,” the euro region will emerge stronger. She hosts French President Francois Hollande as the leaders of Europe’s two biggest economies seek common ground on Greece and the wider euro-area debt crisis. Greece’s Prime Minister, Antonis Samaras, will follow Hollande to Berlin tomorrow and travel on to Paris on Aug. 25.

Gold for immediate delivery climbed for a seventh day, up as much as 0.8 percent to $1,667.15 an ounce, the most since May 1. Silver futures led gains in the GSCI gauge of commodities, rising 2.9 percent. Copper jumped 1.1 percent to $7,688 a metric ton. Oil for October delivery gained for a third day on the New York Mercantile Exchange, advancing to as high as $98.29 a barrel.

U.S. stock futures fell as the number of Americans filing applications for unemployment benefits climbed last week to a one-month high, showing little progress in the labor market. Jobless claims rose by 4,000 for a second week to reach 372,000 in the period ended Aug. 18, Labor Department figures showed today in Washington. The median forecast of 41 economists surveyed by Bloomberg called for 365,000.

Home Sales

Sales of new houses in the U.S. climbed 3.6 percent to a 372,000 annual pace, following a 359,000 rate in June that was higher than previously estimated, figures from the Commerce Department showed today in Washington. The median estimate of 72 economists surveyed by Bloomberg called for a rise to 365,000. The rate was the same in May, which was the strongest since April 2010.

Fed Bank of Chicago President Charles Evans told reporters in Beijing today that easing policies would support economic growth around the world, including in China, broadening his call for more stimulus in the U.S. James Bullard, the Fed Bank of St. Louis President, said the minutes of this month’s meeting were no longer as relevant because the U.S. economy has picked up in the past month.

The dollar weakened against most of its major peers and the Dollar Index dropped to as low as 81.284, the least since June 20. The greenback slid as much as 0.3 percent to $1.2572 per euro. South Korea’s won rose the most in two weeks to 1,130.60 per dollar and New Zealand’s currency appreciated to a two-week high of 81.87 U.S. cents.

Treasury Yields

The yield on 10-year Treasuries dropped as much as two basis points to 1.67 percent, the lowest since Aug. 14, after an 11 basis-point decline yesterday. Germany’s 10-year bund yield fell nine basis points to 1.37 percent. The additional yield investors demand to hold Spanish 10-year debt instead of benchmark German securities widened to more than 5 percentage points for the first time since Aug. 17.

Euro-area services and manufacturing output contracted for a seventh straight month in August, according to a composite index (HSCEI) based on a survey of purchasing managers in both industries in the 17-nation euro area. The preliminary reading for a purchasing managers’ index for China released today by HSBC Holdings Plc and Markit Economics was 47.8 after July’s final 49.3 figure. If confirmed, it would be the weakest level since November.

Europe Stocks

The Stoxx Europe 600 Index slipped 0.6 percent after gaining as much as 0.6 percent. Royal Ahold NV slid 3.8 percent after the Dutch retailer reported an operating margin in its domestic market that missed analysts’ estimates. Petropavlovsk Plc (POG) tumbled 16 percent, its biggest plunge in more than three years, after the gold miner posted a 90 percent drop in first- half net income from a year earlier.

Anglo American Plc added 2 percent as the commodity producer was said to be nearing an agreement to end its 10-month dispute with Chile’s Codelco over a copper mine, according to a person with knowledge of the negotiations.

The MSCI Emerging Markets Index climbed 0.4 percent. The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong and Russia’s Micex Index jumped at least 0.7 percent.

To contact the reporters on this story: Glenys Sim in Singapore at gsim4@bloomberg.net; Paul Dobson in London at pdobson2@bloomberg.net

To contact the editor responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net


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