Gold and silver sank with oil, while the dollar weakened against most peers and Treasuries rose as investors dissected speeches from Federal Reserve officials to gauge the outlook for stimulus. Most U.S. stocks fell after the Dow Jones Industrial Average exceeded 16,000 for the first time.
Gold and silver lost more than 1 percent as crude closed at a five-month low. The Bloomberg U.S. Dollar Index, which tracks the currency against 10 major peers, slipped to the lowest level in 1 1/2 weeks, while 10-year Treasury yields dropped four basis points. The Dow pared gains to 15,976.02 by 4:35 p.m. in New York. The Standard & Poor’s 500 Index fell 0.4 percent after climbing above 1,800 for the first time. The Hang Seng China Enterprises Index (HSCEI) rose 5.7 percent, the most since 2011.
Fed Bank of New York President William Dudley said while he’s “getting more hopeful” the U.S. economy is gaining strength, policy will probably remain accommodative for a long time. Janet Yellen, nominee for Fed chairman, said last week she wants to maintain bond purchases until the economy improves further. Investor Carl Icahn warned of a “big drop” in the stock market, Reuters reported. China’s leaders vowed to allow more private investment as part of a package of new reforms.
The dollar weakness “is partially being fueled by expectations the Fed taper will remain sidelined until next year, which is largely based on the testimony from Yellen last week,” Omer Esiner, chief market analyst in Washington at the currency brokerage Commonwealth Foreign Exchange Inc., said in a phone interview.
Charles Plosser, president of the Philadelphia Fed, said the central bank’s policy committee needs to set a fixed size for its current quantitative easing program and “bring it to an end” after reaching that amount.
“We cannot continue to play this bond-buying game by ear and risk the Fed’s credibility while creating lingering uncertainty about the course of monetary policy,” Plosser said in text of speech in Philadelphia. Minutes of the last Federal Open Market Committee meeting will be published Nov. 20.
Gold for December delivery declined 1.2 percent to $1,272.30 an ounce, the first drop in four days, while silver futures for delivery next month lost 1.8 percent to $20.357 an ounce. Platinum and palladium slid more than 2 percent.
West Texas Intermediate crude oil fell 0.9 percent to $93.03 a barrel, the lowest level since May 31. Crude also fell as Saudi Arabia exported more oil in September than in any month since November 2005, according to data from the Joint Organisations Data Initiative.
Corn dropped 2.2 percent after the U.S. proposed a cut in the amount of ethanol that must be blended into gasoline, curbing demand for the crop in biofuels.
The dollar weakened against 13 of 16 major peers, losing more than 0.5 percent against Brazil’s real and the South Korean won. India’s rupee strengthened 1.2 percent. The Bloomberg dollar gauge dropped 0.2 percent to 1,015.35, the lowest close since Nov. 6.
The yen rallied for the first time in three days, gaining 0.2 percent to 99.97 per dollar.
The difference between the five-year Treasury rate and similar-maturity swaps narrowed to as little as 9 basis points, the least since March 2010, based on closing levels. The spread shrinks as investors seek to receive a fixed interest rate on contracts backed by a bank instead of less risky Treasuries.
Yields on the U.S. 10-year Treasury note fell to 2.66 percent. German bunds also rose, with yields slipping three basis points, or 0.03 percentage point, to 1.68 percent.
Almost two stocks retreated for each that rose as U.S. benchmark equity indexes fell to their lows of the session after Reuters reported billionaire Icahn was “very cautious” on equities because because low interest rates, rather than management strength, are fueling earnings at many companies.
Among U.S. stocks moving today, Boeing Co., JPMorgan Chase & Co. and Goldman Sachs Group Inc. (GS:US) rose at least 0.8 percent to lead gains in the Dow (INDU), which closed 0.1 percent higher after earlier jumping as much as 0.4 percent.
Boeing rallied after securing record plane orders on the first day of the Dubai Air Show. Tyson Foods Inc. (TSN:US), the largest U.S. meat processor, advanced 2.3 percent after reporting revenue that exceeded analysts’ estimates on higher prices and sales volumes for beef and chicken. Microsoft Corp. fell 1.7 percent after Bank of America Corp. cut its stock rating to underperform from neutral.
The S&P 500 has climbed 26 percent in 2013, poised for its best year in a decade. The benchmark index of U.S. stocks trades for 17 times reported profit, the highest valuation since May 2010.
“We’ve moved pretty far pretty fast,” Kevin Caron, a Florham Park, New Jersey-based market strategist at Stifel Nicolaus & Co., which oversees about $150 billion. “We’re up 25 percent on the major averages, earnings are up low single digits. Obviously there’s a potential for a little bit of a pullback.”
Of the more than 460 S&P 500 members that have reported earnings, 75 percent exceeded analysts’ estimates on profit, while 54 percent beat projections on sales, according to data compiled by Bloomberg.
Cheap is converging with expensive in the American equity market, narrowing options for investors looking for bargains after the broadest rally on record lifted almost 90 percent of the S&P 500.
The difference in valuations shrank to the smallest since at least 1990 after companies such as Hormel Foods Corp. (HRL:US) and CenterPoint Energy Inc. rose to levels that match Ralph Lauren Corp. and Citrix Systems Inc., whose five-year average profit growth rate is twice Hormel’s and CenterPoint’s. A measure of the dispersion of price-earnings ratios in the S&P 500 compiled by Goldman Sachs Group Inc. narrowed to 41 percent in June, the lowest on record, and held around that level since.
The MSCI Emerging Markets Index rose 2 percent today, the most in two months. The Shanghai Composite Index climbed 2.9 percent. India’s Sensex advanced 2.2 percent and benchmark gauges in Brazil, Indonesia, Turkey, Poland and the Czech Republic climbed more than 1 percent.
China’s plan will guide the country toward a market-based economy, “significantly” raise its growth potential and help reduce macro risks, Jun Ma, chief economist at Deutsche Bank AG in Hong Kong, wrote in a report today. “We expect a 20-25 percent upside to the MSCI China” index in the next 12 months, Jun wrote.
China’s interest-rate swaps touched a five-month high. The country will accelerate convertibility of the yuan along with the freeing-up of interest rates, according to the party statement Nov. 15.
“We believe China is on the cusp of a massive multiyear bull run,” Christie Ju, managing director at Jefferies Group LLC in Hong Kong, wrote in a note to clients.
The Stoxx Europe 600 Index increased 0.5 percent. Trading volumes were 19 percent less than the 30-day average, according to data compiled by Bloomberg. The gauge capped a six-week advance on Nov. 15, the longest rally in 15 months, and has climbed 16 percent this year.
Aberdeen Asset Management Plc (ADN) jumped 15 percent after Lloyds Banking Group Plc agreed to sell its Scottish Widows Investment Partnership division to Scotland’s largest money manager. Sonova Holding AG (SOON) advanced 5.4 percent as the world’s largest hearing-aid maker raised its full-year forecast after first-half revenue beat analyst estimates.
Petrofac Ltd. slumped 17 percent, the most since going public in 2005, after the U.K. oil engineer in the Middle East predicted “flat to modest” profit growth in 2014. Korian fell 2.8 percent after agreeing to buy Medica SA for 1.1 billion euros ($1.5 billion) in a merger that will create the largest French operator of nursing homes.
UniCredit SpA (UCG) and Societe Generale SA are selling bonds in euros after the cost for banks to borrow in the currency dropped by the most in six months. Italy’s biggest lender is marketing 500 million euros of securities due May 2019 while SocGen is issuing floating-rate notes.
The Markit CDX North American Investment Grade Index, a credit-default swaps measure that investors use to hedge against losses or to speculate on creditworthiness, increased 1.2 basis point to 71.43 basis points in New York, according to prices compiled by Bloomberg. Earlier, the benchmark declined to 69.5 basis points for the lowest level since since Nov. 6, 2007, in data that adjusts for the effects of the market’s shift to a new version of the index in September.
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