BackS&P 500 drops with European stocks as treasuries, yen strengthen
The S&P 500 retreated 0.3% in New York, and the Stoxx Europe 600 Index slid 1.1%
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London/New York: The Standard & Poor’s 500 Index retreated from a record and European stocks fell with the pound after the Bank of England (BoE) cut its growth forecast. Treasuries and the yen strengthened.
The S&P 500 retreated 0.3% at 9:32 am in New York, and the Stoxx Europe 600 Index slid 1.1%. The US 10- year yield fell 3 basis points to 2.33% and the rate on German bunds dropped three basis points to 0.80%. The pound declined against its 16 major peers. The yen rebounded from a seven-year low after Japanese officials denied Prime Minister Shinzo Abe was considering dissolving parliament and postponing a planned sales-tax increase. Brent crude oil fell 1%.
More than $3 trillion has been added to the value of global equities in the past four weeks amid signs the US economy is weathering a global slowdown and as central banks in Europe and Asia take steps to bolster growth. Federal Reserve Bank of Philadelphia president Charles Plosser said officials now must prepare markets for sooner-than-expected increase in interest rates and the new language in the Fed’s last statement was a step in that direction.
“I think there’s a little bit of a pause here for investors," Eric Wiegand, a New York-based senior portfolio manager at US Bank Wealth Management, which oversees $120 billion, said by phone. “There’s been a deluge of information over the last few weeks and it’s led to markets going from fearful and near panic to much more composed and almost confident in the level we saw with yesterday’s close."
The S&P 500 gained for five straight sessions through Tuesday, bringing its advance from a six-month low in October to 9.5%, as better-than-estimated corporate earnings and economic data boosted confidence the US economy is weathering a global slowdown.
The benchmark index had fallen as much as 9.8% from a September record on increasing signs that European growth was slowing at the same time the Fed was ending its monthly bond purchases.
‘Stagnation Specter’
The BoE said on Wednesday inflation could fall below 1% within months as a renewed slump in the euro area weighs on the UK economy. “A specter is now haunting Europe–-the specter of economic stagnation," BoE governor Mark Carney said.
Plosser said in a speech in London that language added to the Fed’s last statement better shows how policy will react to economic data and “provides a start" toward offering greater clarity.
Four shares fell for every one that advanced in the Stoxx 600. A gauge of lenders paced declines after regulators from the US, Britain and Switzerland fined five banks $3.3 billion in the first wave of penalties in a currency-rigging probe.
Of those that were part of the settlement, HSBC Holdings Plc dropped 0.9%, Royal Bank of Scotland Group Plc slipped 0.9% and UBS AG was little changed. Citigroup Inc. declined 0.7% and JPMorgan Chase & Co. slid 1.5%.
Barclays Plc, which said it’s not ready to reach a settlement, declined 2.4%. Deutsche Bank AG, still under investigation, retreated 1.9%.
Daimler AG lost 2.3%. Reuters reported that Daimler’s Mercedez-Benz unit will recall 10,500 C Class cars in the US because some cars could lose steering at low speeds.
Enel SpA fell 5.6% after Italy’s largest utility said third-quarter profit fell 55%.
Shanghai Connection
The Shanghai Composite Index climbed 1% to a three- year high as brokerages gained before the start of a trading link with Hong Kong. Five days before the exchange link gives foreign investors unprecedented access to mainland shares, their valuation discounts versus Hong Kong counterparts are disappearing.
The largest yuan-denominated stocks have gone from an 11% discount in July to a 2% premium on Tuesday, the priciest level in 14 months, according to Hang Seng Bank Ltd. Just 17 of the 68 dual-listed shares tracked by Bloomberg have lower valuations in Shanghai, versus 26 three months ago.
The ruble and the Micex Index of stocks were little changed. Russia’s currency has tumbled 29% this year, the second-worst performance worldwide, amid a slump in oil prices and the threat of more sanctions over support for separatists in Ukraine.
Mobilizing Forces
Nato said it saw columns of Russian troops and military equipment entering Ukraine this week, supporting allegations by the government in Kiev that the nation’s eastern combat zone is close to returning to open war.
The yield on Ukraine’s Eurobonds due July 2017 jumped 166 basis points to a record 17.80%. The hryvnia climbed 5.4%, trimming this year’s depreciation to 45%, the biggest drop among more than 170 currencies tracked by Bloomberg.
Oil futures in London fell for a third day amid signs Opec (Organization of the Petroleum Exporting Countries) members are resisting calls to lower output. The 12-member group, which next meets on 27 November, is undecided on a production cut, Angola’s deputy oil minister Anibal Octavio da Silva said on Tuesday. Saudi Arabia, Opec’s largest producer, and Kuwait have signaled they’re unlikely to cut.
Brent for December settlement declined 1% to $80.89 a barrel. The contract, which expires on Thursday, closed at $81.67 on Tuesday, the lowest price since October 2010. West Texas Intermediate (WTI) crude dropped 1.1% to $77.10 a barrel.
Japanese Elections
Natural gas dropped for a third day as forecasts for easing cold weather signalled reduced demand for the heating fuel. Soybean climbed as much as 2.1% to the highest since August.
The yen advanced 0.5% to 115.21 per dollar and added 0.6% to 143.59 per euro. Chief cabinet secretary Yoshihide Suga told reporters in Tokyo on Wednesday he’s not preparing for an early election, and there was no change to the government’s stance to make a decision by the end of this year on raising the country’s sales tax.
Sterling slid 0.6% to $1.5828. In their Inflation Report published in London on Wednesday, policy makers led by governor Mark Carney forecast expansion of 2.9% in 2015 and 2.6% in 2016. That’s down from 3.1% and 2.8% in August.
The US plans to sell $24 billion of 10-year notes on Wednesday and $16 billion of 30-year bonds on Thursday.
Long-term treasuries are the best-performing government bonds for international investors this year. Bonds due in a decade and longer have returned 18% in 2014 through Tuesday, after accounting for both gains in the debt and a dollar rally. It’s the best return among 144 bond indexes around the world tracked by Bloomberg and the European Federation of Financial Analysts Societies. Bloomberg
Naoto Hosoda in Tokyo, Emma O’Brien in Wellington, Srinivasan Sivabalan, Paul Dobson, Andrew Reierson and Sofia Horta e Costa in London, Jonathan Burgos in Singapore and Nick Gentle in Hong Kong also contributed to this story.
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