US stocks decline with Europe on rate bets as commodities drop
S&P 500 Index slipped 0.3% in New York; Stoxx Europe 600 Index slid 0.7% after rising 1.8% last week
London/New York: US stocks dropped from a record and European shares declined as analysts brought forward estimates for the Federal Reserve to raise interest rates. Three-year treasuries fell with commodities.
The Standard & Poor’s 500 Index slipped 0.3% at 9:31 am in New York. The Stoxx Europe 600 Index slid 0.7% after rising 1.8% last week. The yield on treasury three-year notes climbed two basis points to 0.98%. Emerging market stocks advanced as Indonesian stocks gained the most since April. The S&P GSCI index of 24 commodities slumped 0.5%, as gold lost 0.4%, copper fell 0.6% and US natural gas tumbled 2.7%.
Goldman Sachs Group Inc. revised its forecast for the Federal Reserve to raise rates to the third quarter of 2015, rather than the first three months of 2016, saying the economy is accelerating to an above-trend pace. Minutes of the last US policy meeting are due this week and Alcoa Inc. is set to release earnings. American markets resume on Monday from a three-day weekend after stronger-than-forecast employment data on 3 July.
“Valuations are pretty stretched, and we don’t see a lot of revenue growth, which might be negative for the market," Bruce Bittles, chief investment strategist at Milwaukee-based RW Baird & Co., which oversees $110 billion, said in a phone interview. “There may be some concern about earnings, but this is basically a market being driven by an improving economy and guarantees by the Federal Reserve that they’re not going to raise interest rates."
Goldman joins companies including JPMorgan Chase & Co. and Bank of Tokyo-Mitsubishi UFJ Ltd. in moving up its Fed estimates after the US data last week showed the economy added 288,000 workers in June, compared with the 215,000 projected by a Bloomberg News survey of analysts.
Target Rate
Fed policy makers have kept their target for overnight lending between banks in a range of zero to 0.25% since December 2008. Traders see about a 72% chance officials will raise the key rate from near zero by September 2015, fed funds futures show. That’s up from 56% at the end of May.
Fed chair Janet Yellen said on 2 July that concerns about financial stability shouldn’t prompt a change in current policy. Three rounds of monetary stimulus from the Fed and better than-forecast corporate earnings have driven the S&P 500 up more than 190% from its March 2009 bottom. The central bank will publish the minutes of its 17-18 June meeting on 9 July.
International Monetary Fund (IMF) managing director Christine Lagarde signalled a cut in the institution’s global expansion forecasts, saying on Sunday that investment is still weak and risks remain in the US even as its rebound accelerates. The IMF is preparing to update its economic forecasts this month after predicting on 8 April that the global economy will expand 3.6% this year and 3.9% in 2015.
17,000 Level
Both the S&P 500 and the Dow Jones Industrial Average advanced 1.3% last week, with the 30-stock gauge closing above 17,000 for the first time. The S&P 500 is trading at 16.7 times the projected earnings of its members, higher than the five-year average multiple of 14.3.
Alcoa will unofficially open the second-quarter earnings-reporting season on Tuesday. Profit at companies in the S&P 500 increased 5% in the three months through June, estimates compiled by Bloomberg show.
More than five shares declined for every one that advanced in the Stoxx 600, with trading volumes 19% below the 30-day average, data compiled by Bloomberg show.
European Shares
Sky Deutschland AG fell 3.1% after Nomura Holdings Inc. lowered its rating on the company controlled by Rupert Murdoch’s 21st Century Fox Inc. Deutsche Boerse AG slid 2.4% after Credit Suisse Group AG recommended selling shares of the operator of the Frankfurt Stock Exchange.
PostNL NV rallied 18% after the Dutch mail service boosted its annual profit forecast. Tele2 AB and TeliaSonera AB climbed at least 2% after the Swedish company agreed to buy Tele2’s Norwegian business.
The MSCI Emerging Markets Index added 0.2%, heading for the highest close in 16 months.
Russia’s Micex index jumped 1.3%, rebounding from the steepest decline in a week on 4 July, as the country urged a renewal of peace talks after Ukrainian forces recaptured rebel strongholds. The Ukrainian Equities Index advanced 1.2%.
Indonesia’s main stock index climbed 1.7% on speculation Jakarta’s governor Joko Widodo will beat Prabowo Subianto for the top office. The rupiah gained 1.4%. Presidential candidates traded barbs over corruption and vested interests in a televised debate before the world’s fourth-most populated country goes to the polls on 9 July.
Treasury five-year yields increased one basis point to 1.75%, while rates on 10-year securities were little changed at 2.63%. Germany’s five-year yield fell one basis point to 0.34%.
The dollar was little changed at $1.3594 per euro after advancing to $1.3576, the strongest level since 26 June. The US currency slipped 0.2% to ¥101.90.
Gold dropped 0.4% to $1,315 an ounce and copper slipped 0.6% to $7,120.5 a metric tonne. US natural gas fell on plentiful supplies. West Texas Intermediate oil lost 0.3% from the close on 3 July to $103.78 a barrel, the seventh consecutive drop and the longest slump since December 2009. Bloomberg
Candice Zachariahs and Adam Haigh in Sydney, Kristine Aquino in Singapore, Yuko Takeo and Kevin Buckland in Tokyo, Cecile Vannucci, Claudia Carpenter, Paul Dobson and David Goodman in London and Nick Gentle in Hong Kong also contributed to this story.
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