U.S. stocks fell as Apple Inc. tumbled and improving economic data fueled speculation the Federal Reserve is moving closer to raising interest rates. Precious metals retreated and the dollar extended a four-year high while Treasuries climbed.
The Standard & Poor’s 500 Index lost 1 percent at 10:30 a.m. in New York. The Nasdaq 100 Index tumbled 1.5 percent, the most since July, as Apple dropped 2.8 percent. The Stoxx Europe 600 Index retreated 0.7 percent after erasing an earlier gain. The MSCI Emerging Markets Index declined 0.7 percent to the lowest level since June. The Bloomberg Dollar Spot Index climbed for a fifth day, rising 0.2 percent, as the euro touched a 22- month low. The yield on 10-year Treasuries dropped 4 basis points to 2.52 percent. Silver slumped 1.3 percent and gold fell 0.3 percent.
Orders for U.S. business equipment climbed more than economists estimated in August and applications for jobless benefits increased less than forecast last week, data today showed, following a surge in new-home sales reported yesterday. The growth signs are leading traders to bring forward bets on higher U.S. interest rates, buoying the dollar, as monetary policy from the euro area to New Zealand weighs on other currencies.
“Everyone is still waiting for a change in Fed policy, the timing on which is still unknown,” Chris Hyzy, chief investment officer of U.S. Trust in New York, which oversees $325 billion, said in a phone interview. “There’s a lot of position squaring going on in the month of September. We still expect very limited downside swings in the market before now and the end of the year.”
Investors are scrutinizing data for clues on whether U.S. economic growth is strong enough to withstand higher interest rates. The Fed last week retained assurances that its benchmark rate will stay low for a “considerable time” after its bond buying ends, while cautioning that the timing could move forward if data continues to exceed expectations.
U.S. data tomorrow will show gross domestic product grew 4.6 percent in the second quarter, more than the previous estimate of 4.2 percent released Aug. 28, according to a Bloomberg survey of analysts.
Treasuries rose, pushing the yield on 10-year U.S. government bonds 4 basis points lower to 2.52 percent. The Treasury will sell $29 billion of seven-year notes today after receiving the lowest demand at a five-year auction this year at yesterday’s sale, as the prospect of higher interest rates dims demand for U.S. debt.
The odds the central bank will increase its benchmark rate by July 2015 have risen to 56 percent from 52 percent at the end of August, federal fund futures show.
Charles Evans, president of the Chicago Fed, yesterday joined the New York Fed’s William C. Dudley and Narayana Kocherlakota of Minneapolis in warning the Fed shouldn’t make a change before being sure the economy can withstand higher borrowing costs. The trio argued separately that moving prematurely poses a greater risk to the economy than waiting too long.
The Bloomberg Dollar Spot Index is heading for its biggest quarterly gain since the period ended Sept. 30, 2011, and touched the highest level since June 2010 today.
The greenback strengthened against all but two of its major peers, losing 0.1 percent to 108.93 yen. The euro slid as low as $1.2697, briefly dropping below $1.27 for the first time since November 2012, amid bets the ECB will boost monetary stimulus.
Policy makers are ready to use “additional unconventional instruments” to further address the risk of a prolonged period of low inflation, European Central Bank President Draghi told Lithuania’s business newspaper Verslo Zinios in comments published today.
Bank of England Governor Mark Carney said the judgment on when to increase the the U.K.’s benchmark rate from a record low has become “more balanced” in recent months. The U.K. is poised for the fastest growth in the Group of Seven this year and BOE policy makers are weighing when to begin removing emergency stimulus measures.
“The theme during the second half of this year is dollar strength,” Yannick Naud, a money manager at Sturgeon Capital Ltd. in London, said in an interview on Bloomberg Television’s “On The Move” with Jonathan Ferro. “The economy is growing very strongly, we have a very good set of results and the central bank will probably be the first, or the second after the Bank of England, to increase interest rates.”
The kiwi tumbled 1.7 percent to 79.43 U.S. cents, and touched 79.30 cents, the least since September last year, as Reserve Bank of New Zealand Governor Graeme Wheeler said in a statement that the currency is “susceptible to a significant downward adjustment.” The Australian dollar weakened 0.9 percent to 88.04 U.S. cents after touching 87.92 cents, the lowest since Feb. 4.
The Bloomberg Commodity Index of 22 raw materials fell 0.6 percent. Gold dropped 0.3 percent to $1,215.40 an ounce and silver retreated 1.3 percent to $17.48 an ounce.
Commodities also weakened after Wu Ruilin, deputy head of China’s State Administration of Foreign Exchange, said some banks played roles in fake trade at the port of Qingdao.
Copper futures slipped 0.8 percent and nickel slumped 0.5 percent to $17,307 a ton after the allegations of fake trade documents in China.
Companies “faked, forged and illegally re-used” documents for exports and imports, including in Qingdao, SAFE’s Wu said. The fraudulent trades have “increased pressure from hot money inflows and provided an illegal channel for criminals to move funds,” Wu said. China is the biggest buyer of industrial metals.
“Some companies used the trade channel to bring in hot money,” said Zhou Hao, a Shanghai-based economist at Australia & New Zealand Banking Group Ltd. SAFE’s investigation “will likely further cool down hot money inflows and commodity imports could slow as banks will likely conduct more careful checks on documentation.”
The U.K. government said today it will seek to criminalize the manipulation of seven benchmarks including the WM/Reuters 4 p.m. London currency fix, the Sterling Overnight Index Average, the London Gold Fixing and the ISDAFix, as it tries to revive confidence in the integrity of London as a financial center.
West Texas Intermediate oil rose 0.4 percent to $93.21 a barrel. Crude has dropped 12 percent since the end of June on signs of plentiful supplies even as the U.S. is bombing Syria. U.S. and Arab warplanes struck small refineries in eastern Syria controlled by Islamic State extremists, according to the Pentagon.
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