U.S stocks fell and Asian equity futures dropped on concern central banks are growing reluctant to add more stimulus after the Bank of Japan left its lending program unchanged. Ten-year Treasury yields fell from a 14-month high and the yen was little changed after surging yesterday.
The Standard & Poor’s 500 Index (SPX) declined 1 percent in New York, while futures on the Nikkei 225 Stock Average slid 2.8 percent and contracts on the Hang Seng Index retreated 0.6 percent. The MSCI All-Country World Index (MXWO) dropped 0.7 percent by 7:15 a.m. in Tokyo. Japan’s currency gained less than 0.1 percent after rallying the most in three years yesterday against the dollar. West Texas Intermediate crude declined 0.5 percent, while the Australian dollar added 0.3 percent.
The BOJ left unaltered yesterday the one-year fixed-rate loan facility the bank has tapped seven times amid a surge in volatility during which yields have jumped from record lows. At a briefing in Tokyo, Kuroda said the central bank will discuss longer funding operations if they become necessary. While global stocks have dropped 4.2 percent from this year’s peak reached May 21 on speculation the Federal Reserve will taper bond purchases, they are still up 7 percent in 2013.
“The market has almost become addicted to monetary stimulus,” Erik Davidson, deputy chief investment officer for Wells Fargo Private Bank in San Francisco, said in a phone interview. His firm oversees $170 billion. “Any sense that the monetary stimulus will slow down or stop, and that by no means is the case in Japan, but just on the margin Japan won’t be more aggressive is the reason for the concern.”
The S&P GSCI (SPGSCI) gauge of 24 raw materials retreated 0.7 percent yesterday as industrial metals led declines. The Dow Jones Industrial Average fell 0.8 percent. S&P 500 stock futures were little changed at 1,627.60.
The yen traded at 96.07 per dollar and fell less than 0.1 percent percent to 127.90 versus the euro. The Aussie climbed to 94.48 U.S. cents after touching the lowest level since September 2010 yesterday. The New Zealand dollar gained 0.2 percent to 78.87 cents. The Dollar Index (DXY), a gauge of the currency against six major peers, slipped 0.7 percent yesterday and touched the lowest level since February.
Volatility has jumped in the last three weeks as investors reacted to policy moves by central banks, with the Vstoxx Index based on the Euro Stoxx 50 Index climbing 7.2 percent yesterday and rising 29 percent since May 22. The Chicago Board Options Exchange Volatility Index, or VIX (VIX), added 11 percent to 17.07 yesterday. The equity volatility gauge, which moves in the opposite direction as the S&P 500 about 80 percent of the time, reached a six-year low in March and has risen 51 percent since then.
Speculation around central-bank stimulus plans also has led to losses in some so-called carry trades, in which investors convert currencies of nations with lower-yielding bonds into currencies from countries offering higher returns.
The Group of 10 carry trade has lost 21 percent on an annualized basis in the second quarter after a 9.9 percent return in the first three months of the year, according to data compiled by Bloomberg. The G-10 carry trade involves selling the three lowest-yielding currencies in the group, such as the Swiss franc, and buying the three highest ones, such as Australia’s dollar. The short and long baskets are adjusted daily, based on fluctuations in yields.
The S&P 500 slipped for a second day. The equity benchmark posted its biggest two-day gain in five months at the end of last week as U.S. employers added more jobs than economists forecast.
All 10 of the main industry groups in the S&P 500 retreated as gauges of commodity and financial companies dropped more than 1 percent for the biggest declines. Citigroup Inc. retreated 3.8 percent, the most since February. Charles Peabody, who leads research at Portales Partners LLC, estimated the bank may lose $5 billion to $7 billion in regulatory capital this year should the dollar gain against the yen, euro and currency and emerging markets.
Lululemon Athletica Inc. tumbled 18 percent after announcing that Chief Executive Officer Christine Day will leave the company. Sprint Nextel Corp., which agreed in October to a takeover by SoftBank Corp., gained 2.4 percent after the Tokyo-based mobile carrier raised its offer.
The MSCI Emerging Markets Index (MXEF) fell 1.9 percent, retreating for a fifth day and reaching a nine-month low.
Yields on Turkey’s two-year notes increased 32 basis points, or 0.32 percentage point, to 6.82 percent as clashes between protesters and riot police continued in Istanbul’s Taksim Square. Yields have climbed 103 basis points since the day before protests erupted May 31.
The lira was little changed against the dollar after gaining 0.6 percent yesterday. Turkey’s benchmark stock gauge slipped 1.8 percent yesterday.
The Stoxx Europe 600 Index (SXXP) slid 1.2 percent yesterday as nine shares declined for every one that advanced. ICAP Plc slipped 3.6 percent, the most in two months, after Credit Suisse Group AG downgraded the world’s largest broker of transactions between banks to underperform. Legrand SA lost 4.1 percent after Wendel, France’s largest publicly traded investment firm, sold its remaining 5.4 percent stake in the biggest maker of wiring devices.
Commodities fell for the second consecutive day yesterday, led by metals. Aluminum dropped 1.9 percent and copper declined 1.4 percent. Brent crude slipped 1 percent to $102.96 a barrel after production at the North Sea’s Buzzard oil field resumed this week. Lean hogs advanced for a fourth day yesterday, the longest stretch of gains since April 26.
The Bloomberg-JPMorgan Asia Dollar Index (ADXY) erased losses yesterday after slumping as much as 0.4 percent and touching a nine-month low.
The yield on 10-year U.S. Treasuries slipped two basis points to 2.19 percent after reaching 2.29 percent, the highest level since April 4, 2012. U.S. government securities fell earlier amid speculation the surge in yields would prompt investors to sell government debt as a hedge against losses on mortgage bonds. The U.S. sold $32 billion of three-year notes, the first of three auctions this week that include 10- and 30-year debt, to the weakest demand since 2010.
“When the game starts to change with central banks, it is inevitable bonds are going to suffer,” Jim O’Neill, former chairman of Goldman Sachs Asset Management, said in an interview in London yesterday. “If the U.S. is returning to normality, which I have suspected for a while it is, and the Fed starts to change its own view about that then at some point, we have to get used to the notion of U.S. bonds being closer to 4 percent than 2.”
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