Stocks Retreat as Treasuries, Dollar Gain as Home-Sales Decline
By Nick Baker and Nikolaj Gammeltoft
June 23 (Bloomberg) -- Stocks fell, Treasuries rose and the dollar strengthened against the euro after U.S. new-home sales dropped to a record low. Copper, gold and oil declined as Federal Reserve policy makers met.
The Standard & Poor’s 500 Index lost 0.6 percent to 1,089.29 at 11:45 a.m. in New York, declining for a third straight day, and the Stoxx Europe 600 Index fell 0.8 percent. Yields on 10-year Treasuries decreased as much as 8 basis points to a one-month low of 3.09 percent. The euro slipped 0.3 percent to $1.2231. Copper futures fell 1.6 percent in New York, gold dropped 0.5 percent and crude oil lost 1.6 percent. Spanish and Greek bonds fell.
Purchases of new homes in the U.S. fell in May to an all- time low as a tax credit expired, showing the market remains dependent on government support. Sales collapsed a record 33 percent to an annual pace of 300,000 last month from April, less than the median estimate of economists surveyed by Bloomberg News and the fewest in data going back to 1963, figures from the Commerce Department showed. Fed policy makers announce their interest-rate decision at about 2:15 p.m. New York time.
“The housing data was atrocious,” said Eric Mintz, who helps manage $3 billion at Eagle Asset Management in St. Petersburg, Florida. “It was a blow to the idea that we are out of the woods in terms of the economic difficulties.”
‘Extended Period’
The Fed will keep its key rate unchanged until 2012 because of high unemployment and low inflation, said Edward McKelvey, senior U.S. economist at Goldman Sachs Group Inc. in New York. Fed officials, who are likely to repeat the commitment to an “extended period” of low interest rates in a Washington meeting today, are contending with joblessness that’s still close to a 26-year high. Rising foreclosures and a drop in new home sales are threatening to harm the recovery.
Goldman predicts no rate change until 2012 “because the unemployment rate is very high, because inflation is well below the Fed’s objective, and is actually drifting down,” McKelvey said in an interview with Bloomberg Television’s “Inside Track” program today. “They’re really missing on both their targets and there’s no reason to raise rates at this point.”
Caterpillar Inc., Microsoft Corp. and DuPont Co. fell more than 1.8 percent to lead losses in the Dow Jones Industrial Average. Adobe Systems Inc. dropped 5.3 percent in New York after forecasting revenue that may miss the average analyst estimate. Freeport-McMoRan Copper & Gold Inc. slumped 2.3 percent as copper and gold declined.
Treasury Auctions
Five-year U.S. notes yields slid before the Treasury auctions $38 billion of the securities. The government sold $40 billion of two-year notes yesterday at a record low yield of 0.738 percent. The difference in yield between 10- and 2-year yields dropped to 2.45 percentage points, the narrowest since June 9, on speculation inflation is contained.
An indicator of corporate credit risk in the U.S. declined for the ninth time in two weeks. Credit-default swaps on the Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, fell 1.5 basis point to a mid-price of 113.5 basis points at 8:26 a.m. in New York, according to Markit Group Ltd. The index usually falls as investor confidence improves and rises as it deteriorates.
The yen gained against the euro for a fourth day and rose versus the dollar as concern that weakness in U.S. housing and European manufacturing will hamper the global recovery spurred demand for the currency as a refuge. The dollar weakened 0.5 percent to 90.09 yen, near an almost four-week low. Japan’s currency rose against 15 of its 16 most actively traded counterparts after data showed growth in European services and manufacturing industries slowed in June.
Spreads Widen
The extra yield investors demand to hold the bonds of so- called peripheral European nations instead of German bonds increased as signs the economic recovery may be slowing added to the appeal of the safest fixed-income assets.
The yield on the benchmark 10-year bund fell to its lowest in a week after a report today showed growth in Europe’s services and manufacturing industries slowed in June. It extended declines after the U.S. housing report. Spanish and Greek bonds fell, widening the yield spread over German notes. The cost of insuring against losses on Greek debt soared to the highest in more than a month.
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