Dollar Climbs While U.S. Stocks Fluctuate as Oil Tumbles

San Francisco (Nov 3)  The dollar rose to an almost seven-year high and Treasuries fell as growth in manufacturing reinforced strength in the American economy. U.S. stocks fluctuated as energy shares tumbled with oil prices.

The Bloomberg Dollar Spot Index advanced 0.7 percent as of 2:50 p.m. in New York, with the currency climbing 1.3 percent to 113.80 yen, the highest since December 2007. The Standard & Poor’s 500 Index fell 0.1 percent, after closing at an all-time high last week. West Texas Intermediate settled below $80 a barrel for the first time since June 2012 as Saudi Arabia cut U.S. prices. The yield on 10-year Treasuries rose 1 basis point to 2.34 percent.

The dollar has rallied and equities reached record levels after U.S. data last week underscored the strength of the economy and bolstered the case for the Federal Reserve to raise interest rates. A report today showed manufacturing in the U.S. expanded in October at a faster pace than forecast, while an official gauge of Chinese factory output unexpectedly dropped over the weekend.

“All arguments are in favor of the dollar,” said Lutz Karpowitz, a senior currency strategist at Commerzbank AG in Frankfurt. “It’s very clear that the Fed is the central bank that is relatively hawkish. We are seeing underlying dollar strength, and it’s justified.”

 

The yen extended losses from last week, when the Bank of Japan raised the annual target for enlarging the monetary base to 80 trillion yen ($709 billion), from a range of 60 to 70 trillion yen previously.

S&P Record

The S&P 500 rallied last week, capping a monthly advance as better-than-estimated earnings and economic data eased concern about the end of Fed bond buying. The S&P 500 has rebounded 8.3 percent from a six-month low on Oct. 15. The gain has pushed the index to trade at 16.8 times the members’ projected profit, near its highest multiple since 2009.

Manufacturing data today added to evidence that the world’s largest economy can sustain a withdrawal in central-bank stimulus. The Institute for Supply Management’s factory index increased to 59 in October, matching August as the highest since March 2011, after 56.6 the prior month, the Tempe, Arizona-based group’s report showed today. Readings above 50 indicate expansion. A gauge of production was the strongest in a decade.

Other releases this week will probably show services industries grew last month, while the unemployment rate remained at a six-year low.

Earnings Season

Earnings reports may provide further clues to the health of the U.S. economy. American International Group Inc., Time Warner Inc., and Walt Disney Co. are among more than eighty S&P 500 companies posting financial results this week.

Analysts predict profit for members of the gauge rose 8 percent in the third quarter, higher than the 4.9 percent growth projected a month ago. Sales probably increased 3.6 percent in the three-month period, the estimates show.

“We’re continuing to focus on earnings, which by and large seem pretty good,” Walter Todd, who oversees about $1 billion as chief investment officer for Greenwood, South Carolina-based Greenwood Capital Associates LLC, said in a phone interview. “That’s been positive for the market, as has the lack of headlines around international events and Ebola.”

Five out of 10 major industries in the S&P 500 rose today, with utilities climbing 0.8 percent as a group. Financial and technology companies gained at least 0.3 percent. Energy shares slumped 1.6 percent as oil prices tumbled.

Apple Sale

Apple Inc. gained 1.1 percent. The company is holding calls with investors today to discuss a bond sale, according to a person familiar with the matter. Goldman Sachs Group Inc. and Deutsche Bank AG were hired to organize the calls, said the person, who asked not to be identified because they’re not authorized to speak about it.

Treasuries fell, sending the 10-year note yield 1 basis point higher to 2.34 percent. The rate on similar-maturity German debt was 0.85 percent, up 1 point.

Italian bonds dropped for the first time in five days amid speculation the European Central Bank will refrain from adding to its stimulus program at a meeting this week. The yield on 10-year Italian notes jumped 7 basis points to 2.41 percent and Spain’s increased 7 points to 2.14 percent.

The scope for buying eligible asset-backed securities as part of its stimulus plan “is rather large and purchases of senior tranches alone should make it possible to generate significant volumes,” ECB President Mario Draghi commented in letters to European lawmakers. The ECB’s Governing Council gathers in Frankfurt this week and announces its monetary-policy decision on Nov. 6.

Bill Gross, in his second investment outlook since joining Janus Capital Group Inc., said deflation is a “growing possibility” as governments worldwide are struggling to create inflation and stimulate growth.

‘Fine Attempt’

Central banks around the world have made “a damn fine attempt” at fueling inflation, yet their efforts have pushed up financial assets, rather than prices in the real economy, Gross wrote in his outlook titled “The Trouble with Porosity and Prosperity.”

The Stoxx Europe 600 Index slid 0.8 percent after rallying 2.9 percent last week. HSBC Holdings Plc fell 1.8 percent. Europe’s largest bank by market value posted lower-than-estimated profit as it set aside more than $1 billion for customer redress and a probe into rigging currency markets.

Ryanair Holdings Plc rallied to a record after raising its full-year profit forecast for the second time this year.

Publicis Groupe SA dropped 2.3 percent after agreeing to buy Boston-based Sapient Corp. for $3.7 billion. Portugal Telecom SA rose 4.1 percent, gaining for a fifth day as Altice SA offered to buy its Portuguese assets from Brazil’s Oi SA.

Emerging Markets

The MSCI Emerging Markets Index fell for the first time in five days, losing 0.7 percent, as Chinese shares in Hong Kong retreated from the highest level in six weeks. The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong’s declined 0.9 percent.

The Chinese government’s Purchasing Managers’ Index was at 50.8 in October, trailing the 51.2 median estimate of analysts in a Bloomberg News survey and compared with September’s 51.1. Readings above 50 indicate expansion.

Rebel Elections

The ruble retreated 1.3 percent to 43.59 per dollar while the Micex Index of stocks added 0.2 percent. The Moscow Exchange was open even as Russia had a public holiday, with many banks and brokerages limiting activity.

Russian-backed rebels held elections in their self-proclaimed people’s republics in eastern Ukraine, a move that the government in Kiev said poses a threat to the peace process. The one-day ballot, designed to pick a head of government as well as local parliament, was only backed by Russia.

Brazil’s Ibovespa slid 1.3 percent. The country’s economy will probably grow 0.24 percent this year, down from an earlier forecast of 0.27 percent, according to the median of about 100 estimates in a central bank survey published today.

Investors pulled money out of U.S. exchange-traded funds that invest in emerging markets last month for the first time since March. Redemptions from ETFs that invest across developing nations as well as those that target specific countries totaled $994.9 million in October compared with inflows of $977.9 million in September, according to data compiled by Bloomberg.

Natural gas rose 4.2 percent, climbing for a fifth day in New York amid forecasts for unusually chilly weather in the U.S. East that may boost heating demand.

U.S. crude oil futures dropped as much as 1.7 percent in New York trading, while Brent retreated 0.8 percent. Saudi Arabian Oil Co., the world’s largest crude exporter, increased the cost of oil sales to Asia and Europe and reduced them for the U.S.

Source:  Bloomberg