U.S. stocks fell, extending a weekly loss, as the International Monetary Fund cut its 2014 American growth forecast and warned that tapering of Federal Reserve stimulus may be risky if not handled properly. Treasuries and commodities rise, while the yen rallied.
The Standard & Poor’s 500 Index declined 0.6 percent to 1,626.73 as of 4 p.m. in New York, extending its weekly decline to 1 percent. Ten-year Treasury yields decreased two basis points to 2.13 percent and German 10-year bunds rose for a fourth day, pushing the yield down five basis points to 1.51 percent. The yen advanced 1.3 percent versus the dollar, capping a fourth week of gains. Oil reached a four-month high and silver and gasoline rose more than 1 percent to pace gains in commodities.
The IMF lowered its prediction for 2014 U.S. growth to 2.7 percent from 3 percent and said “effective communication” on the Fed’s exit strategy and careful calibration are needed to avoid volatility in interest rates. The gains in government debt underscored growing speculation that Fed Chairman Ben S. Bernanke next week may damp expectations for a rate increase and indicate a measured reduction in bond-buying.
“We’re hitting a period of higher volatility,” Bryan Novak, who helps oversee about $650 million at Chicago-based Astor Asset Management LLC, said in a telephone interview. “Interest rates need to rise, but while you have an economic picture where growth is around 2 percent, you don’t have a lot margin of error to work with in terms of interest rates,” he said. “The market is going to focus heavily on every word that the Fed says.”
Almost $3 trillion has been erased from the value of global equities since Bernanke said May 22 the central bank could scale back stimulus efforts should the jobs market outlook show “sustainable improvement.”
The S&P 500 jumped 1.5 percent yesterday, its second-biggest gain of the year. Today’s retreat was led by financial, commodity and technology companies, with only utilities posting gains among the 10 main groups in the S&P 500.
DuPont Co. and American Express Co. (AXP:US) slipped more than 2 percent after analysts cut their recommendations. Edwards Lifesciences Corp. slid 2.7 percent after losing a patent-infringement case against Medtronic Inc. GameStop Corp. and Groupon Inc. jumped 3.9 percent and 12 percent respectively amid analyst upgrades.
Investors have been dissecting economic reports for clues to whether the recovery is strong enough to allow the Fed to scale back its quantitative easing programs. The Fed will hold its two-day policy meeting next week, with Chairman Ben S. Bernanke scheduled to speak after the central bank’s decision on June 19.
Consumer confidence in June eased from a six-year high as progress in the labor market supported Americans’ views of the economic outlook. The Thomson Reuters/University of Michigan preliminary index of consumer sentiment declined to 82.7 in June from 84.5 the prior month that was the highest since July 2007, a report today showed. The median forecast in a Bloomberg survey was unchanged at 84.5.
“What investors are aware of is so much of this recovery is based on Fed stimulus packages and the idea of the Fed continuing to put liquidity in the system,” Eric Thorne, who helps oversee about $6 billion at Bryn Mawr Trust Co. in Bryn Mawr, Pennsylvania, said in a phone interview. “All eyes are on the Fed in terms of what policy might be like three to six months from now. Our take on it is that the Fed is unlikely to step in with any kind of potential damper. The Fed will not be anxious to raise interest rates any time soon.”
Industrial production, which measures output at mines and utilities in addition to factories, climbed 0.2 percent in May after a 0.5 percent drop the previous month, according to the median of 85 estimates in a Bloomberg survey.
The Stoxx Europe 600 Index rose 0.2 percent today, paring this week’s loss to 1.5 percent. Hochtief AG jumped 5.9 percent after the German builder said it will buy back as much as 260 million euros ($347 million) of its own shares. Lanxess AG climbed 2.5 percent after Kepler Cheuvreux advised investors to buy the stock and said the European chemical market is improving. Germany’s DAX Index added 0.4 percent with trading volume 20 percent less than the 30-day average.
The yield on 10-year Italian bonds tumbled eight basis points to 4.28 percent while the rate on similar-maturity Portuguese debt sank 22 basis points to 6.30 percent.
Japan’s currency appreciated 1.3 percent to 125.89 per euro. Minutes from the Bank of Japan’s latest meeting showed one policy maker advocated restricting stimulus to a two-year period. The euro slipped 0.3 percent to $1.3332. The JPMorgan Global FX Volatility Index (JPMVXYGL) fell to 10.58 percent after reaching 11.43 percent yesterday, the highest since June 2012.
The MSCI Emerging Markets Index rose 1.1 percent, paring its fifth weekly decline. Benchmark gauges in Indonesia, Thailand and the Philippines climbed more than 2 percent. Chinese shares in Hong Kong fell for a record 12th day as the nation’s Finance Ministry failed to sell all of the debt offered at an auction.
The Borsa Istanbul Stock Exchange National 100 Index jumped 4.6 percent and the lira gained for a fourth day. Prime Minister Recep Tayyip Erdogan met a group of protesters in Ankara yesterday and the government said Gezi Park, where clashes with police erupted on May 31, won’t be redeveloped until a court rules on the plan and the public is consulted.
The S&P GSCI Index rose 0.6 percent, leaving it little changed for the week.
West Texas Intermediate crude rose to a four-month high after President Barack Obama was said to authorize arming Syrian rebels groups, ratcheting up tensions in a region home to about a third of world oil supply. West Texas oil rallied 1.2 percent to $97.85 in New York. Brent crude for August settlement was up 0.9 percent at $105.93 a barrel on the London-based ICE Futures Europe exchange.
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