U.S. stocks fell with the ruble as the U.S. joined Europe in announcing tougher sanctions against Russia. Treasuries climbed and the dollar gained before a Federal Reserve policy decision, while Twitter Inc. (TWTR:US) soared in extended trading after revenue topped analysts’ estimates.
The Standard & Poor’s 500 Index fell 0.5 percent to 1,969.95 in New York, after earlier gaining as much as 0.3 percent. The ruble lost 0.9 percent as the dollar extended gains. Ten-year Treasury yields declined three basis points to 2.46 percent and rates on German notes fell to a record low. Gold slipped 0.4 percent as U.S. oil slid to a two-week low. Twitter jumped more than 30 percent after hours as the microblogging company said sales more than doubled.
The U.S. sanctioned three Russian banks and a state-owned shipbuilder that supplies the country’s navy and its oil and gas industry, joining with the European Union in escalating the penalties for Russia over its actions in Ukraine. Equities rose earlier in the day as Windstream Holdings Inc. led a rally in phone shares and Merck & Co. posted better-than-estimated earnings. Fed policy makers started a two-day meeting as data showed consumer confidence rose to the highest level since 2007.
“Geopolitical risk remains a risk,” Dan Veru, chief investment officer at Fort Lee, New Jersey-based Palisade Capital Management, said by phone. The firm oversees $5 billion in assets. “But let’s look at what’s happening that’s good. What ultimately makes stocks go higher is earning and earnings are supporting higher valuations in the market.”
Twitter traded at $50.20 by 4:49 p.m. in New York, after closing at $38.59 in ordinary trading. The company also reported user growth of 24 percent, compared with 25 percent in the previous year-over-year period. Users reached 271 million in the second quarter, exceeding the 267 million predicted by analysts.
The S&P 500 dropped in afternoon trading with the announcement of the U.S. sanctions, and extended losses into the market’s close. Equities had fluctuated for most of the day as investors weighed improving earnings reports against concern over escalating tensions on Ukraine.
OAO VTB Bank, Bank of Moscow and the Russian Agricultural Bank became the latest targets of restrictions in the U.S. and Europe’s campaign to deter President Vladimir Putin from supporting Ukrainian rebels. United Shipbuilding Corp., which has contracts with the Russian military, also was sanctioned.
Futures contracts on OAO Sberbank, Russia’s largest lender, which is state-controlled, slipped 0.9 percent in most recent trading, while the Market Vectors Russia exchange-traded fund sank 2.1 percent in New York to the lowest close since May. The Bloomberg Russia-US Equity Index of the most-traded Russian companies in New York fell 0.8 percent in a fourth day of declines.
Earlier in the day, EU governments agreed to bar Russian state-owned banks from selling shares or bonds in Europe and restricted the export of equipment to modernize the oil industry, a key prop for Russia’s economy, an EU official told reporters. New contracts to sell arms to Russia and the export of machinery, electronics and other civilian products with potential military uses will also be banned.
The ruble traded as low as 35.8045, the weakest level since May 5. Russian ruble-denominated bonds due in 2027 declined for a fourth day, sending the yield 14 basis points higher to 9.47 percent. The Finance Ministry canceled its second ruble debt auction in a row, citing “unfavorable market conditions.”
The Micex Index of Russian stocks rose 0.6 percent, rebounding after a two-day slide that dragged the gauge to its lowest close since May 6.
The Fed’s Open Market Committee will scale back its monthly asset purchases to $25 billion from $35 billion July 30, according to economists surveyed by Bloomberg, keeping it on pace to end the program late this year. The policy-making committee last month repeated it’s likely to “reduce the pace of asset purchases in further measured steps” and that it expects interest rates to stay low for a “considerable time” after the bond-buying ends.
Chair Janet Yellen and her fellow policy makers are debating how long to keep interest rates near zero as the U.S. labor market improves and inflation moves closer to the Fed’s 2 percent goal.
Three rounds of monetary stimulus from the Fed and better than-forecast corporate earnings have driven the S&P 500 up 192 percent from its March 2009 bottom. The S&P 500 is trading at 18 times earnings of its members, around the highest valuation for the gauge since 2010.
The benchmark index has increased 6.6 percent this year as the economy shows signs of recovering from a 2.9 percent drop in the first quarter. Investors will get a reading on second-quarter growth tomorrow, while the government’s labor report on Aug. 1 may show employers added 231,000 jobs this month.
The Conference Board’s index of U.S. consumer confidence increased to 90.9 in July, the highest since October 2007, from 86.4 a month earlier, the New York-based private research group said today. The S&P/Case-Shiller index of property values in 20 cities increased 9.3 percent from May 2013, the smallest year-to-year advance since February 2013, after rising 10.8 percent in the year ended in April.
“Risk assets globally continue to be supported by the fact that the Fed is in no hurry to hike interest rates,” said Alvin T. Tan, the director of foreign-exchange strategy at Societe Generale SA in London. “Our economists are expecting the U.S. data to come out on the positive side.”
Quarterly profit growth is poised for the fastest increase in almost three years. Companies in the S&P 500 have reported an 11 percent gain in second-quarter earnings, data compiled by Bloomberg show. Should the pace continue, the gain would exceed all periods since the third quarter of 2011.
About 78 percent of S&P 500 members that have posted results this season have beaten analysts’ estimates for profit, while 66 percent exceeded sales projections, data compiled by Bloomberg show.
Phone companies in the S&P 500 jumped 2.2 percent as a group. Frontier Communications Corp. climbed 14 percent and CenturyLink Inc. added 5.8 percent. AT&T Inc. led gains in the Dow, increasing 2.6 percent.
In Europe, Banco Espirito Santo SA’s shares fell 11 percent after a Portuguese newspaper said the lender will report the nation’s biggest-ever banking loss when it publishes its results tomorrow.
A rally in European bonds, fueled by unprecedented central bank stimulus and subdued inflation, sent German yields below the previous record set at the height of the euro area’s sovereign debt crisis. Finland’s 10-year rate fell to 1.252 percent and Italy’s dropped to 2.638 percent. All-time lows were also set for Ireland, Belgium, France, Spain, Netherlands and Austria.
Markets in Turkey, the United Arab Emirates, Qatar, Indonesia, Malaysia, the Philippines, Sri Lanka and India were closed for holidays.
The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major counterparts, added 0.3 percent to 1,016.84, the highest close since April 3.
The dollar gained 0.3 percent to 102.12 yen, its eighth straight one-day advance for the longest rally since October 2012. The greenback gained 0.2 percent to $1.3409 per euro. The 18-nation currency was little changed at 136.93 yen.
Gold, regarded as a haven investment along with Treasuries and the yen, fell to $1,299.11 an ounce on the spot market, erasing an earlier gain of 0.6 percent.
West Texas Intermediate crude declined 0.7 percent to $100.97 a barrel, the lowest level in two weeks, on concern the shutdown of the Coffeyville refinery in Kansas may reduce oil demand. CVR Refining LP closed the 115,000-barrel-a-day plant following a fire in an isomerization unit, the company said.
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