BackUS stocks slide, dollar rises as data boost case for rate rise
Among stocks moving on Tuesday, energy shares tumbled 0.9%, while materials producers lost 1.1% to lead declines
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London/New York: US stocks dropped the most in two weeks while the dollar jumped after data from housing to manufacturing beat estimates, boosting the case for higher interest rates. Oil retreated with gold.
The Standard & Poor’s 500 Index lost 0.7% at 10:05 am in New York, the biggest intraday slide since 12 May. The Bloomberg Dollar Spot Index added 0.7%, with the greenback at the strongest versus the yen in nearly eight years. Germany’s 10-year bund yield declined three basis points to 0.57%, while Greece’s jumped 55 basis points to 11.92%. Oil slumped 1.5%.
Orders for capital equipment rose in April for a second month, sales of new homes climbed more than forecast and a measure of regional manufacturing exceeded estimates. The reports add to evidence of a rebound in growth after a first-quarter slowdown and come after Federal Reserve vice chairman Stanley Fischer said rate increases will be driven by data. Chair Janet Yellen last week said that borrowing costs will rise this year.
“The market is kind of striking this in-between, wanting better economic data but then the flipside meaning the Fed is that much sooner to raising rates," said Walter Todd, who oversees about $1 billion as chief investment officer for Greenwood, South Carolina-based Greenwood Capital. “I’m fine with that, with seeing better economic data and dealing with the implications."
The S&P 500 slipped from an all-time high on Friday after Yellen said it would be “appropriate" to raise rates this year if the economy improves, while adding that the pace of further increases will be gradual. Equity markets were closed on Monday for the Memorial Day holiday.
Trading range
The stocks benchmark traded last week in the tightest range in six months as investors weighed data showing strength in the labour market against continued signs of weakness in manufacturing. Equities have fluctuated near records on speculation the Fed won’t raise rates too soon or too quickly to snuff out economic growth.
Among stocks moving on Tuesday, energy shares tumbled 0.9%, while materials producers lost 1.1% to lead declines. Time Warner Cable Inc. rallied 4.4% as Charter Communications Inc. agreed to buy the company.
The dollar strengthened versus all 16 of its major peers. The US currency added 0.9% to ¥122.64 and touched ¥122.69, its highest level since July 2007. It added 0.7% to $1.0899 per euro, taking this year’s gain versus the 19-nation shared currency to 11%.
“The dominant thing is the dollar story," said Esther Reichelt, a currency strategist at Commerzbank AG in Frankfurt. Fed policy makers “know that low rates are not without risk. They fear that if they wait too long they’ll have to hike faster in order to prevent overheating."
Greek debt
The euro dropped to its lowest level in a month against the dollar, while German government bonds rose the most in a week. Euro-area markets are on tenterhooks as Greece’s Syriza-led administration seeks bailout loans, with a payment due to the International Monetary Fund (IMF) next month.
The nation’s finance minister Yanis Varoufakis blamed creditors’ insistence on more austerity for the lack of a deal that would release the funds.
The Stoxx Europe 600 was little changed as an advance in travel shares offset a drop in energy producers.
The MSCI Emerging Markets Index dropped 0.3% and a Bloomberg gauge of 20 currencies fell 0.4% to a one-month low.
Gold dropped 1.5% to $1,187.30 an ounce, the lowest in two weeks, as prospects for US interest rate increase helped to push the dollar to a one-month high, curbing demand for the metal. Silver and platinum declined.
Brent crude futures fell 1.7% to $64.43 a barrel in London after rising on Monday for the third time in four days as investors weighed flaring Middle East violence against signs that a global oil glut will persist. Bloomberg
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