BLBG: Dollar Advances as Treasuries Decline on Interest-Rate Outlook
Apple falls on order to pay $14.5 billion in EU tax crackdown
Oil hovers above $47 a barrel as emerging markets rebound
Share on Facebook
Share on Twitter
The dollar strengthened and Treasuries fell as Federal Reserve Vice Chairman Stanley Fischer said the world’s largest economy was close to full employment, reinforcing speculation that policy makers are moving toward raising borrowing costs.
The U.S. currency climbed to the highest in three weeks as Fischer, who last week suggested that interest rates may rise as soon as September, said Tuesday in a Bloomberg Television interview that officials can choose the pace of rate increases based on economic data. Apple Inc. led losses in the S&P 500 Index after being ordered to repay a record 13 billion euros ($14.5 billion) plus interest in the European Union’s largest tax penalty. Oil rose above $47 a barrel.
Speculation the U.S. will raise interest rates this year surged over the past two weeks, boosting the dollar, as Fed officials including Chair Janet Yellen said the case for tightening policy is getting stronger. Consumer confidence in the U.S. increased to an almost one-year high in August, the New York-based Conference Board said in a report on Tuesday. Investors will now be looking at monthly payrolls figures Friday to judge if the economy is strong enough to support a hike.
“The market will focus on Friday’s job number and think about the interest rate outlook,” said Peter Tuz, who helps manage $380 million as president of Chase Investment Counsel Corp. in Charlottesville, Virginia. “A good, strong jobs number, as we’ve had the last few months, probably gives the Fed room to move, which I think they really want to do.”
Currencies
The Bloomberg Dollar Spot Index, which tracks the currency against 10 peers, advanced 0.5 percent as of 10:11 a.m. in New York. The U.S. currency strengthened 0.2 percent against the euro and 0.4 percent versus the yen, which was trading at 102.29 per dollar.
“The dollar is likely to stay on a firm footing into the Friday payrolls report, but we’ll need to see a solid set of numbers for gains to be sustained beyond that,” said Ned Rumpeltin, the European head of currency strategy at TD in London. “I think it would take a very strong jobs report -- complete with robust wage growth numbers -- to put September really on the table.”
Fed funds futures indicate there’s a 36 percent chance that the Fed will raise rates in September, up from 28 percent a week ago, and Fischer has said U.S. payrolls figures on Friday will be key to the central bank’s decision making. The report is projected to show employers added 180,000 jobs this month, following a gain of 255,000 in July.
Prospects for higher U.S. rates has prompted options traders to turn bullish on the currency versus yen for the first time since November. One-month 25-delta risk reversals show that call options on the dollar cost seven basis points more than put options, a sign more investors expect the dollar to rally than to weaken. Put options on the dollar had traded at a premium throughout this year.
South Korea’s won rose 0.5 percent versus the dollar, the best performance among 16 major currencies.
Stocks
The S&P 500 dropped 0.1 percent. Apple slumped after the European Commission said the iPhone maker benefited from a “selective tax treatment” in Ireland that gave it a “significant advantage over other businesses.”
Potash Corp. surged after people familiar with the matter said the second-largest producer of its namesake fertilizer and Agrium Inc. are planning to merge. Mondelez International Inc. rallied after saying it’s walking away from takeover discussions with Hershey Co. two months after its $23 billion bid was rejected by the chocolate maker. Abercrombie & Fitch Co. sank after slow sales at flagship locations weighed on its latest results and outlook.
European stocks climbed, extending monthly gains, amid increasing confidence in the global economy and as a weaker euro boosted exporters. The Stoxx Europe 600 Index rose 0.8 percent, with almost all of its industry groups rising. Commodity producers bucked the trend as metal prices fell and Citigroup Inc. analysts turned bearish on mining shares.
The MSCI Emerging Markets Index rebounded from a three-week low. Energy shares led gains, with benchmarks in Hong Kong and India climbing more than 1 percent.
Bonds
The yield on U.S. government debt due in a decade increased one basis point, or 0.01 percentage point, to 1.57 percent, after dropping seven basis points on Monday. The spread between five- and 30-year Treasury yields reached the narrowest since February 2015 at 102 basis points. Shorter-tenor debt tends to be more sensitive to the outlook for monetary policy than longer-dated bonds.
Comments from central bankers during and in the run-up to the Kansas City Fed’s annual symposium last week in Wyoming have split the market. Pacific Investment Management Co. also concluded there was nothing of note for rates in Yellen’s remarks, while Goldman Sachs Group Inc. and Mitsubishi UFJ Securities Holdings Co. saw them as hawkish enough to raise the odds of action next month.
“The work of the central bank is never done, and I don’t think you can say ‘one and done’ and that’s it,” Fischer said, when asked if a solitary rate increase was possible. “We choose the pace on the basis of data that’s coming in.”
The policy-setting Federal Open Market Committee meets next on Sept. 20-21 in Washington. The meeting will be followed by a press conference with Yellen and by a fresh set of economic projections by policy makers.
West Texas Intermediate crude was up 0.9 percent at $47.39 a barrel. U.S. stockpiles probably increased by 1.5 million barrels last week, according to analysts surveyed by Bloomberg before official data due Wednesday. Oil explorers discovered just 2.7 billion barrels of new supply in 2015, the smallest amount since 1947, and this year’s tally is on track to be even smaller, according to figures from consulting firm Wood Mackenzie Ltd.
“We’ve had a big rally and a bit of a dip but oil has been resilient, holding comfortably above $45 a barrel,” said Angus Nicholson, a market analyst in Melbourne at IG Ltd. “We’ve seen a lot of jerky trade based on various rumors associated with the OPEC meeting and I’m sure that will continue.”
Gold fell 0.2 percent to $1,321.39 an ounce, putting it on course for the seventh loss in eight sessions as a stronger dollar made the metal less attractive in countries outside the U.S. Central banks, the biggest holders of bullion, cut their purchases by 40 percent from a year earlier in the last quarter to the lowest since 2011, World Gold Council figures compiled by Bloomberg show. Copper erased earlier gains of as much as rose 0.7 percent in London. Zinc dropped 0.8 percent.
