US Stocks Tumble, US Dollar Gains as Data Boost Case for Rate Rise
New York (May 26) US stocks dropped the most in three 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 1 percent at 1:31 p.m. in New York, the biggest intraday slide since May 6. The Bloomberg Dollar Spot Index added 0.8 percent, with the greenback at the strongest versus the yen in nearly eight years. Treasuries rose on safety demand amid concern about the Greek debt crisis. Oil slumped 3 percent, while gold lost 1.4 percent.
Orders for capital equipment rose 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 looming Fed change is always out there,” Richard Sichel, chief investment officer at Philadelphia Trust Co., which oversees $2 billion, said by phone. “You have a couple of items that could be considered good, things are looking better, the dollar is strong, basically it’s working against the market at the moment.”
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 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 labor 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 Tuesday, energy shares tumbled 1.6 percent, while materials producers lost 1.3 percent to lead declines. Time Warner Cable Inc. rallied 6.7 percent as Charter Communications Inc. agreed to buy the company.
“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.”
Dollar, Bonds
The dollar strengthened versus all 16 of its major peers. The U.S. currency added 0.9 percent to 122.64 yen and touched 122.69 yen, its highest level since July 2007. It added 0.9 percent to $1.0876 per euro, taking this year’s gain versus the 19-nation shared currency to 11 percent.
“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.”
The 30-year yield fell seven basis points to 2.91 percent, the highest in more than a week. Shorter-term U.S debt was little changed before the U.S. sells $26 billion of two-year notes Tuesday.
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 next month.
Greek Crisis
The nation’s Finance Minister Yanis Varoufakis blamed creditors’ insistence on more austerity for the lack of a deal that would release the funds.
Germany’s 10-year bund yield declined six basis points to 0.55 percent, while Greece’s jumped 51 basis points to 11.88 percent.
The Stoxx Europe 600 tumbled 0.7 percent, posting the longest losing streak in three weeks.
The MSCI Emerging Markets Index dropped 1 percent and a Bloomberg gauge of 20 currencies fell 0.4 percent to a one-month low.
Gold slid to $1,187.50 an ounce, the lowest in two weeks, as prospects for U.S. 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 3.2 percent to $63.41 a barrel in London after rising Monday for the third time in four days as investors weighed flaring Middle East violence against signs that a global oil glut will persist.
Source: Bloomberg
