US Stocks, Dollar Remain Lower as Fed Says Economy Weakened
Washington (Apr 29) U.S. stocks, the dollar and Treasuries remained lower amid a global retreat in some of the year’s most popular trades, after Federal Reserve policy makers did little to alter investor views on the timing for higher interest rates.
The Standard & Poor’s 500 Index fell 0.4 percent at 2:17 p.m. in New York, while the Bloomberg Dollar Spot Index dropped 0.5 percent, headed for a sixth day of losses. The yield on 10-year Treasury notes rose two basis points to 2.02 percent. The yield on 10-year German bunds climbed to a six-week high as rates surged on debt from the Netherlands to Spain and Italy. European equities earlier capped the biggest two-day slide this year.
Fed officials unanimously voted to hold rates near zero. They have said they expect to raise rates this year for the first time since 2006 as the economy nears full employment, and that their decision will be guided by the latest data.
“I don’t think they told us anything we didn’t know,” Joe “JJ” Kinahan, chief strategist at TD Ameritrade Holding Corp., said in a phone interview. “Overall, they’re just restating the policy they had. The Fed wants to monitor the situation closely and watch for the 2 percent inflation rate.”
A report earlier Wednesday showed growth almost ground to a halt in the first quarter, held back by severe winter weather and slumping business spending and exports. While the impact of unusually harsh winter weather is likely to fade, other drags, including a drop in capital spending and exports, may last longer.
“Economic growth slowed during the winter months, in part reflecting transitory factors,” the Federal Open Market Committee said in a statement Wednesday in Washington. “The pace of job gains moderated,” it said, and “underutilization of labor resources was little changed.”
The dollar headed for its longest slump since 2013 as data showed the U.S. economy stalled. European stocks capped the biggest two-day slide this year, after last week reaching all-time highs, while top money managers are turning against euro-area government bonds after yields dropped to unprecedented lows.
U.S. gross domestic product rose at a 0.2 percent annualized rate in the first quarter after advancing 2.2 percent the prior quarter, Commerce Department data showed Wednesday in Washington. The median forecast of 86 economists surveyed by Bloomberg called for a 1 percent gain.
Separate data showed the number of Americans who signed contracts in March to buy previously owned homes climbed after the biggest increase in more than four years, a sign for further progress in the housing recovery.
Dollar Slide
Fed officials all but ruled out a rate increase before this meeting, while analysts have shifted out expectations for the first boost to September from June.
The slower growth and speculation the Fed won’t rush to raise rates sent the Bloomberg dollar gauge to a two-month low. The U.S. currency slid 1.4 percent to $1.11371 for a fifth day of losses.
“It was a disappointing number and the dollar is weaker,” Eric Viloria, a strategist at Wells Fargo & Co. in New York, said by phone. “It does create a little more uncertainty and it does restrain the dollar a little bit.”
The Bloomberg dollar gauge has retreated almost 5 percent since reaching the highest level in data going back to 2005 on March 13.
Earnings Scorecard
The S&P 500 had risen 2.3 percent this month through yesterday, rebounding from a drop in March, after earnings from companies including Merck & Co. and Microsoft Corp. beat analysts’ estimates. About 74 percent of the S&P 500 companies that have reported earnings this season have beaten analysts’ profit projections, while 48 percent topped sales estimates.
The Stoxx Europe 600 capped its worst two-day decline this year, as the 2.2 percent slide left it down 3.7 percent since Monday and trimmed its gain this year to 16 percent.
Continental AG and Volkswagen AG slipped at least 4 percent, sending carmakers to the worst drop among industry groups. Germany’s DAX Index plunged 3.2 percent, the most in a year and among the biggest retreats in western-European markets. Antofagasta Plc and Outokumpu Oyj slid after reporting quarterly results, pushing miners lower.
German Yields
“European markets have gone up a lot during the first quarter on hopes that earnings are going to be good,” said Pierre Mouton, who helps oversee $8 billion at Notz, Stucki & Cie. in Geneva. “One thing that could prevent the market going higher is the strength of the euro recently. That may be detrimental to the performance of European exporters.”
The slide in European bonds made similar-maturity U.S. debt less attractive.
German bonds slid after the country failed to meet its sales goal at an auction today and inflation picked up in Europe’s largest economy.
Germany got bids of 3.649 billion euros at the five-year note auction, short of its 4 billion-euro sales goal. Adding to the supply pressure, Italy auctioned 8.25 billion euros of debt on Wednesday, while Portugal began selling 10- and 30-year bonds via banks.
Pound, Oil
The sales come amid signs investor sentiment is souring toward European bonds. DoubleLine Capital’s Jeffrey Gundlach said on Tuesday he’s considering making an amplified bet against German bonds to join a growing group of top money managers wagering against the debt.
Last week, Bill Gross, who ran the world’s largest bond fund until last year, called the 10-year German bund the “short of a lifetime.”
The pound rose for a seventh day versus the dollar in its longest winning run in three years. Sterling climbed 0.8 percent to $1.5460, the highest level in two months. The BOE probably will increase interest rates in 12 months time, four months after the Fed, according to Morgan Stanley indexes.
West Texas Intermediate crude gained after a government report showed crude inventories at the biggest U.S. oil hub fell for the first time in 21 weeks. Futures in New York rose to $59.21 a barrel. Brent for June settlement added 2.7 percent to $66.40 a barrel in London.
Source: Bloomberg
