U.S. Stocks Fluctuate as Dollar Strengthens Before Fed Minutes – Bloomberg

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U.S. stocks rebounded from Tuesday’s slump as a plunge in Treasuries on speculation interest rates may rise twice this year boosted financial shares. The dollar rose while emerging-market assets retreated. 

Banks led gains in the S&P 500 Index, overshadowing renewed losses in consumer-linked companies amid concern retailers will struggle this year. Ten-year Treasury yields rose to a two-week high, and the dollar climbed to a seven-week high before Wednesday’s release of minutes from the Federal Open Market Committee’s last meeting. Copper and gold fell for the first time in four days.

The dollar is rebounding in May amid heightened speculation over the trajectory of higher U.S. borrowing costs. Better-than-expected data on consumer inflation, housing starts and industrial production yesterday prompted traders to boost the odds of a move in June threefold to 16 percent, fueling further gains in the U.S. currency and a selloff in shares. Minutes from the Fed’s April meeting today will be in focus after hawkish comments from regional presidents yesterday.

“With the strength of the CPI number yesterday, you saw some dollar strength yesterday and we are seeing that continue today,” said Robert Pavlik, who helps oversee $9.1 billion as chief market strategist at Boston Private Wealth. “We’re seeing some rotation out of the more defensive areas like staples and that relates to yesterday’s inflation concern coming in hotter than expected. That’s leading people to bring the Federal Reserve back on the table for the June meeting.”

Stocks

The S&P 500 rose 0.4 percent at 11:50 a.m. in New York, after slumping 0.9 percent yesterday. Bank shares in the benchmark headed for their best day in a month after JPMorgan Chase & Co., the largest U.S. bank by assets, raised its quarterly dividend.

Goldman Sachs Group Inc. downgraded equities to neutral, saying they don’t look attractive unless companies post sustained earnings growth. Retailers remained under pressure as Target Corp. had its steepest drop since 2008 after reporting quarterly sales that missed analysts’ predictions. Wal-Mart Stores Inc. lost 2.8 percent, dragging down consumer staples shares after the group yesterday saw the biggest one-day slide in eight months.

The Stoxx Europe 600 Index added 0.5 percent after swinging between gains and losses. Burberry Group Plc dropped 2.4 percent after the luxury-goods retailer added to the industry’s gloom by posting a second straight drop in annual earnings.

The MSCI Asia Pacific Index lost 0.8 percent, led by declines in consumer-goods producers. Suzuki Motor Corp. plunged 9.4 percent in Tokyo after saying it used an improper method to test the fuel efficiency of its vehicles.

Chinese stock led declines in emerging markets, with the Hang Seng China Enterprises Index of mainland companies listed in Hong Kong losing 1.5 percent.

Currencies

The Bloomberg Dollar Spot Index advanced 0.3 percent. The yen slipped 0.4 percent to 109.62 per dollar, while the euro weakened 0.3 percent to $1.1283.

The pound jumped to a two-week high against the euro and reversed its drop against the dollar after a poll showed the campaign to keep Britain inside the European Union extended its lead. Sterling rose 1 percent to $1.4613 after dropping as much as 0.4 percent. The survey by the Evening Standard newspaper and Ipsos Mori put the “Remain” camp’s lead at 18 percentage points.

The MSCI Emerging Markets Currency Index fell 0.6 percent with Brazil’s real, Poland’s zloty and Malaysia’s ringgit all losing at least 0.8 percent versus the dollar.

The rand led losses, tumbling 1.3 percent. South African Finance Minister Pravin Gordhan said rumors and accusations that he was involved with espionage are false and “malicious.” The Sunday Times newspaper has reported, citing people it didn’t identify, that Gordhan is at risk of being charged with espionage and fired.

Commodities

Copper fell along with other metals amid rising supplies and an uncertain demand outlook in China, the world’s top consumer. Antofagasta Plc, a Chilean copper producer, said it isn’t counting on an improving global economy and expects low copper prices for another year or two, according to a statement from Chairman Jean-Paul Luksic.

Copper for delivery in three months slid 1 percent. Gold for immediate delivery lost 0.7 percent.

Oil retreated 0.1 percent to $48.26 a barrel in New York after closing on Tuesday at the highest since Oct. 9. A government report will probably show that U.S. crude supplies fell by 3.5 million barrels last week after rising to the highest level since 1929 in April.Wildfires in Canada have shifted back toward oil-sands operations, forcing Suncor Energy Inc. to evacuate three sites it was restarting.

Bonds

The yield on U.S. two-year Treasuries climbed to 0.85 percent. The 10-year yield increased five basis points to 1.82 percent, the highest since May 2. That compares with a one-month low of 1.70 percent at the end of last week.

Jan Hatzius, the chief economist at Goldman Sachs Group Inc., warned that bond investors aren’t prepared for the Fed to raise interest rates despite officials having flagged the possibility of such a move.

“The market’s underestimating their willingness to follow through on what they say,” Hatzius said in an interview on Bloomberg Television. “If you look at where the yield curve is priced — how little normalization of monetary policy is discounted — that’s very striking.”