Dollar Declines With U.S. Stocks as Wage Growth Slows; Oil Lower

New York (Jan 9)  U.S. stocks fell after a two-day rally, the dollar slumped and Treasuries rose as a drop in hourly wages bolstered the case to keep rates low even as employment gains topped forecasts. Oil extended declines.

The Standard & Poor’s 500 Index (SPX) fell 0.4 percent at 10:17 a.m. in New York after a two-day gain of 3 percent. The Bloomberg Dollar Spot Index declined 0.3 percent from an all-time high. Oil slid in London, extending its weekly drop to 10 percent. The Stoxx Europe 600 Index lost 0.5 percent on concern central-bank stimulus will not bolster growth.

Employment rose more than forecast in December and the jobless rate declined to 5.6 percent, wrapping up the best year for the labor market since 1999, government data showed today. The report wasn’t all good news as earnings unexpectedly declined from a month earlier. European stocks fell earlier on speculation a central bank stimulus plan will fail to shore up the economy.

“I think it’s a mild negative for the economy,” Eric Wiegand, a senior portfolio manager at U.S. Bank Wealth Management in New York, which oversees $126 billion, said by phone. “The numbers don’t fully address and confirm that the all-clear has been sounded. We’ve gone for a considerable period without seeing wage growth.”

The Bloomberg Dollar Spot Index slipped 0.2 percent after Minneapolis Fed President... Read More=

Wage Disappointment

The S&P 500 jumped 1.8 percent yesterday, the most since Dec. 18. The gauge has declined 0.2 percent this week.

The addition of 252,000 jobs followed a 353,000 rise the prior month that was more than previously estimated, the Labor Department report showed. The jobless rate dropped the lowest level since June 2008. Average hourly earnings for all employees dropped by 0.2 percent, the biggest since comparable records began in 2006.

“The disappointment is we continue to see no sign of wage inflation, which at this stage is something that we want to see,” Mark Spellman, a portfolio manager who helps oversee $4.2 billion at Alpine Funds in Purchase, New York, said by phone. “We want to see consumers to get more money. At some point, we need higher paying jobs to sustain a better growing economy.”

The yield on 10-year Treasury (USGG10YR) notes fell one basis point to 2 percent. The Treasury rate had fallen as much as five basis points earlier after Boston Fed President Eric Rosengren said low inflation will allow the central bank to move gradually when it begins raising interest rates. Minneapolis Fed President Narayana Kocherlakota said higher rates would hinder a recovery in inflation.

Europe Equities

The Stoxx 600 sank 0.7 percent to erase gains for the week. It rallied the most in three weeks yesterday, erasing losses for 2015, amid speculation weak inflation data this week bolster the case for the European Central Bank to start sovereign-bond purchases at its Jan. 22 meeting.

ECB staff presented policy makers with models for buying as much as 500 billion euros ($591 billion) of investment-grade assets, according to a person who attended a Governing Council meeting. Consumer prices fell last month for the first time in more than five years and ECB President Mario Draghi has signaled the deflationary risks may demand a response.

“This has the potential to have a negative impact as it is only 500 billion euros,” Soeren Steinert, who helps manage $24 billion as associate director for equities trading at Quoniam Asset Management GmbH in Frankfurt, said in a phone interview. “Other higher numbers were rumored -- even trillions -- and Draghi talked about unlimited firepower. So these dramatic words built up expectations. I don’t think this is big enough.”

ECB Stimulus

A 500 billion-euro purchase program would take the ECB halfway toward its goal of boosting its balance sheet to avert a deflationary spiral in the euro area. The institution is also buying asset-backed securities and covered bonds, and government bond-buying would be part of fresh stimulus to be considered at the Governing Council’s Jan. 22 meeting. An ECB spokesman declined to comment on policy makers’ proceedings.

European banks declined the most among 19 industry groups in the Stoxx 600. Banco Santander SA tumbled 12 percent after its board approved plans to cut its dividend and sell shares for as much as 7.5 billion euros.

Developing-nation shares rose for a third day, headed for a fourth week of gains. The MSCI Emerging Markets Index advanced 0.2 percent, extending this week’s gain to 0.9 percent. The gauge has advanced 0.5 percent this year, compared with a 0.9 percent decline in the developed-nation benchmark index.

China Slowdown

The Hang Seng China Enterprises Index advanced 0.5 percent while the Shanghai Composite Index slipped 0.2 percent. Shares in Shanghai erased a gain of as much as 3.4 percent in the last half hour of trading, as traders weighed the prospect of stimulus amid data signaling a deeper economic slowdown.

China’s factory-gate prices extended a record stretch of declines, with the sharpest drop in two years in December. The producer-price index slumped 3.3 percent from a year earlier, the National Bureau of Statistics said in Beijing today, compared with the median projection for a 3.1 percent decline in a survey of analysts by Bloomberg News.

Russia’s ruble weakened 1.7 percent, leaving it 8.7 percent lower this week. The Micex index slipped 2.4 percent. Fitch Ratings is scheduled to review the country’s credit ranking today.

Spanish bonds fell, extending a weekly decline, amid a glut of debt sales in the euro area. The yield rose five basis points to 1.72 percent, up from 1.50 percent on Jan. 2.

Brent in London dropped 1.8 percent to $50.02 a barrel and West Texas Intermediate crude slipped 0.3 percent to $48.62 in New York.

U.S. natural gas futures added 0.9 percent to $2.95 per million British thermal units. New York City will be dusted with snow starting early today as Buffalo is buried in as much as two feet by an arctic air mass, the National Weather Service said.

Gold for immediate delivery advanced 0.7 percent to $1,217.40 an ounce.

Source: Bloomberg