U.S. Stocks Tumble as S&P 500 Extends Monthly Decline

U.S. stocks retreated, sending the Standard & Poor’s 500 Index to a nine-week low, as Chinese equities entered a bear market amid concern a cash crunch will hurt the world’s second-largest economy and speculation increased that the U.S. will begin curbing stimulus.

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Traders work on the floor at the New York Stock Exchange on June 21, 2013. Photographer: Timothy Clary/AFP via Getty Images

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The S&P 500 sank 2.1 percent last week, the most since April 19, after the Federal Reserve said it may start paring stimulus measures as soon as September if the economy improves in line with its forecasts. Photographer: Jin Lee/Bloomberg

Bank of America Corp. and Citigroup Inc. slid more than 2.8 percent as banks tumbled. Barrick Gold Corp. led gold producers lower as the precious metal traded near a 2 1/2-year low. Deere & Co. lost 3.2 percent as JPMorgan Chase & Co. recommended selling the shares. Vanguard Health Systems Inc. surged 67 percent after agreeing to be bought by Tenet Healthcare Corp. for about $1.8 billion.

The S&P 500 (SPX) fell 1.7 percent to 1,565.07 at 10:01 a.m. inNew York, the lowest level on a closing basis since April 22. The Dow Jones Industrial Average slipped 239.03 points, or 1.6 percent, to 14,560.37. Trading in S&P 500 stocks was 33 percent above the 30-day average during this time of day.

“Investors have been shaken by the concept of rising interest rates and a reduction in stimulus from the Federal Reserve, coupled with the uncertainty regarding effectively how robust the Chinese central banking system is,” Ethan Anderson, senior portfolio manager for Rehmann Financial in Grand Rapids, Michigan, said by phone. His firm manages about $1.5 billion. “We found ourselves in a headline-dependent environment, which is difficult for investors to function.”

The CSI 300 Index (SHSZ300) of China’s biggest companies tumbled 6.3 percent, the most since August 2009 and taking its decline from this year’s peak to more than 20 percent. China’s central bank said there’s a reasonable amount of liquidity in the financial system and urged banks to control risks from credit expansion, signaling no relief from a cash squeeze.

China Rates

China’s benchmark money-market rates last week climbed to a record as the central bank refrained from using open-market operations to ease the cash crunch. The rates still fell for a second day today.

The S&P 500 (SPX) sank 2.1 percent last week, the most since April 19, after the Federal Reserve said it may start paring stimulus measures as soon as September if the economy improves in line with its forecasts.

The benchmark index is down 3.9 percent in June, on course for the biggest monthly drop since May 2012. The gauge has declined 6.2 percent since its May 21 high amid speculation the Fed will scale back quantitative easing that helped fuel a rally in stocks worldwide. The index has stillrallied 132 percent from its March 2009 low.

‘Great Performance’

“We’ve had this great performance in stocks without great economic growth,” Larry Kantor, the New York-based head of research at Barclays Plc, told Anna Edwards on Bloomberg Television. “Those days are over. I suspect over the next couple of months U.S. growth is going to be a little weaker than people are anticipating.”

Treasuries slumped today, pushing the 10-year yield as high as 2.66 percent, a level not seen since August 2011, before data this week that may add to the case for the Fed to slow bond purchases. Reports tomorrow may show U.S. durable-goods orders rose and house pricescontinued to recover, according to Bloomberg surveys of economists.

While U.S. equity volatility reached a six-month high last week, expected stock swings are less than half as much as peaks in the last four years and traders are pricing in little increase for the rest of the year.

Volatility Index

The Chicago Board Options Exchange Volatility Index (VIX) jumped 10 percent to 18.9 for the week. Even after the gauge of options prices on the S&P 500 increased 67 percent since March, it would have to rise 134 percent more to reach its average high of 44 from 2009 to 2012, according to data compiled by Bloomberg. VIX futures expiring in six months trade only 10 percent higher than the index. The gauge jumped 13 percent to 21.45 today.

Financial shares tumbled. Bank of America dropped 3.2 percent to $12.29. Citigroup slipped 2.8 percent to $45.56.

Barrick Gold declined 4.9 percent to $16.06. The precious metal dropped to the lowest since September 2010.

Deere lost 3.2 percent to $79.82 as JPMorgan cut its rating on the world’s largest agricultural-equipment maker to underweight, similar to a sell recommendation, from neutral. Lower crop prices and higher land rent costs may drive profit-per-acre lower, analysts led by Ann Duignanwrote.

Allergan (AGN) Inc. slipped 8.1 percent to $85.15. Deutsche Bank AG downgraded the maker of the Botox wrinkle treatment to hold from buy and Leerink Swann LLC trimmed its recommendation to market perform from outperform.

Vanguard Health Systems jumped 67 percent to $20.61. Tenet will pay $21 a share in cash for the Nashville, Tennessee-based hospital operator and will assume $2.5 billion of Vanguard debt, the companies said in a joint statement.

Yen Misses Out on Flows to Risk-Off Currencies

EUROPEAN SESSION UPDATE: Euro fails to react to a better than expected German business climate survey; PM Abe said the Japanese economy has benefitted from Forex movements…

We seem to be watching another risk-off session in today’s Forex trading, as the Franc and US Dollar are showing the biggest wins, and the three commodity currencies, CAD, NZD, and AUD, are showing the biggest losses. Equities have traded lower in both the European and Asian markets, and US futures are also pointing downwards.

However, the Yen does not seem to be showing any significant gains in today’s risk-off trading, possibly explained by a widespread rise in 10-year bond yields from many different countries, with the exception of Japanese government bonds.

There was little data in today’s European session, and a better than expected rise in the German IFO business climate survey failed to move the Euro significantly higher. Meanwhile, the Swiss 10-year bond yield rose above 1.00% for the first time since October 2011.

In Asia, Japan PM Abe further broke a taboo for Japanese officials to discuss Yen levels, as the leader said Forex movements until now have been positive for the economy. In China, further worries over a lack of liquidity and a Goldman Sachs downgrade of its Chinese growth forecast sent the Shanghai Composite index 5.30% lower and below 2000 for the first time since December.

The US Dollar is currently trading slightly below 98.00 against the Yen, and USD/JPY may again see support around 96.50. The pair may see further resistance by the 99.00 figure.

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Dollar Index Reaches 2-Week High as Fed View Boosts U.S. Yields

The Dollar Index rose to a two-week high as the yield differential between U.S. and Japanese government securities increased to the widest in almost two years, increasing the appeal of dollar-denominated assets.

The U.S. currency rose against all but one of its 16 major counterparts before U.S. reports tomorrow that economists said will show durable-goods orders gained and house pricesincreased as the Federal Reserve may reduce monetary stimulus. A gauge of currency volatility climbed to the highest since June 2012. Chinese stocks fell the most in four years, damping investor interest in riskier currencies. The Swedish krona slid to a seven-month low versus the dollar.

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Stacks of U.S. $100 bills are arranged for a photograph in New York, U.S. Photographer: Scott Eells/Bloomberg

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June 20 (Bloomberg) -- Ford Motor Co. Chief Executive Officer Alan Mulally talks about Japan's currency policy, the automaker's production in Asia and growth strategy in China. He speaks with Bloomberg's Stephen Engle in Nanchang, China. (Source: Bloomberg)

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June 19 (Bloomberg) -- Mitul Kotecha, the global head of foreign-exchange strategy at Credit Agricole SA in Hong Kong, talks about Japan's currency, government and central bank policies. Kotecha also discusses the prospects for Federal Reserve policy and emerging-market currencies. He speaks with Rishaad Salamat on Bloomberg Television's "On the Move." (Source: Bloomberg)

“Long-term yields in the U.S. have continued to jump higher over the last week,” Charles St-Arnaud, a foreign-exchange strategist at Nomura Holdings Inc. in New York, said in a telephone interview. “That’s driving some inflows and strength into the U.S. dollar. There’s been a reassessment of the whole liquidity story and what will be the impact on rates across the board.”

The Dollar Index, which Intercontinental Exchange Inc. uses to monitor the U.S. currency against those of six trading partners, rose 0.3 percent to 82.531 at 8:57 a.m. in New York after climbing to the highest level since June 5.

Currency Levels

The dollar advanced 0.2 percent to $1.3101 per euro after appreciating to the strongest level since June 6. The U.S. currency weakened 0.4 percent to at 97.50 yen. The yen added 0.5 percent to 127.77 per euro.

JPMorgan Chase & Co.’s Group of Seven Volatility Index, based on currency option premiums, rose to as high as 11.83 percent today, the most since June 1, 2012. The gauge has averaged 8.76 percent in the past year.

Sweden’s krona declined versus all 16 of its major peers as the CSI 300 Index of Chinese stocks fell the most in four years, signaling a bear market. The currency dropped 1.3 percent to 6.7550 per dollar after depreciating to the least since Nov. 21. It has tumbled 4.4 percent in the past week.

The Norwegian krone fell against the majority of its most-traded counterparts, slipping as much as 1.6 percent to 6.1539, the lowest since July 17.

Treasury Yields

Treasuries due in two years yielded 0.28 percentage point more than similar maturity Japanese sovereign debt, the biggest premium since July 2011, according to Bloomberg data.

“The fundamental picture for the dollar is clearly positive,” said Marcus Hettinger, a currency strategist at Credit Suisse Group AG in Zurich. “The expectation that the Federal Reserve may start reducing asset purchases leads to higher U.S. yields supporting the dollar.”

The Dollar Index jumped 1 percent on June 19 when Chairman Ben S. Bernanke said policy makers may begin reducing their quantitative-easing program this year and end it in mid-2014 if the economy is achieving the central bank’s objectives. The Fed purchases $85 billion of bonds each month.

Fed Bank of Dallas President Richard Fisher, one of the most vocal critics of the central bank’s quantitative easing, is due to talk about U.S. monetary policy and the economy today in London. This week will also see speeches from Bank of Atlanta President Dennis Lockhart, Bank of Richmond President Jeffrey Lacker, Bank of Cleveland President Sandra Pianalto and Bank of San Francisco President John Williams.

U.S. durable-goods orders increased 3 percent in May after rising a revised 3.5 percent the previous month, according to a Bloomberg News survey before tomorrow’s Commerce Department report. The S&P/Case-Shiller index of home values for 20 cities climbed 10.6 percent for the year ended April after a 10.9 percent gain in March that was the biggest since 2006, a separate survey showed.

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Dollar Boosted By Strong Chicago PMI Data and other Top Forex News.

The dollar surged higher against most major currencies on Friday after Chicago PMI data beat all expectations, adding to speculation the Fed may soon begin to scale back its $85 billion bond-buying program.

The Chicago purchasing managers’ index (PMI) climbed to 58.7 this month from 49.0 in April, beating analysts expectations for a rise to 50.0. Any level above 50 indicates expansion. The data was the largest increase in Chicago PMI for over 30 years.

In a separate report Thomson Reuters/University of Michigan’s final consumer sentiment index rose to 84.5 in May from 83.7 in April, also beating analysts predictions who were expecting the index to remain unchanged.

The positive news increased speculation that the Fed will soon begin to taper its asset purchase program, which weakens the dollar.

In Europe the single currency was hit by record unemployment figures this morning when official data showed that the unemployment rate rose to a new record high of 12.2% in April, from 12.1% the previous month, in line with expectations.

In todays U.S. session, EUR/USD was down 0.65 percent at 1.2962, up from a session low of 1.2945 and off from a high of 1.3049. whilst USD/JPY was up by just 0.07 percent at 100.65. The dollar was also slightly higher against the pound, rising 0.34 percent to 1.5182.

More Coverage of the Day’s Top Story

• FT: Emerging market currencies suffer heavy losses. – Emerging market currencies suffered heavy losses and the dollar index rose as investors bet that improving data on the U.S. economy would encourage the Federal Reserve to reduce its monetary stimulus that has boosted investment into riskier assets.
• DailyFX: USD Correction takes shape ahead of Fed Beige book, NFPs. – The Dow Jones-FXCM U.S. Dollar regained its footing on Friday amid the slew of positive developments coming out of the world’s largest economy.

More Top Stories:

WSJ: End to dollar’s 10-year downtrend may be near. – The U.S. dollar is making a comeback that may mark the end of a decade-long downtrend in the currency, said Jens Nordvig, global head of G10 foreign-exchange strategy at Nomura in New York.

The Australian: Aussie dollar near two-year low. – The commodity currency’s month-long slide eclipsed its sudden and dramatic retreat of a year ago when global markets were shaken by a sovereign-debt crisis in Greece, which subsequently engulfed Europe.

New Zealand Herald: NZ dollar falls on fears of further intervention. – The New Zealand dollar fell after Reserve Bank governor Graeme Wheeler said yesterday he is prepared to keep intervening in foreign exchange markets to limit the rise of the local currency.

Investing.com: GBP/USD pushes lower after U.S. data. – The pound pushed lower against the U.S. dollar on Friday, as upbeat U.S. data added to expectations for the Federal Reserve to scale down its bond-buying program, sending the greenback broadly higher.

Reuters: Gold falls on dollar recovery, but set for 2nd weekly gain. – Gold fell on Friday, as the dollar extended gains after positive U.S. consumer sentiment data raised uncertainty over the Federal Reserve’s monetary easing, but prices were still on track for their second weekly gain.

MarketPulse FX: USD/JPY falls after Japan deflation continues and industrial output drops. – Japan’s core consumer price index fell 0.4 percent in April from a year earlier, while industrial production also weakened, the government reported Friday.

WSJ: Canadian dollar retraces losses after Canada 1Q GDP. – The Canadian dollar retraced some of its losses Friday after a slightly better-than-expected release of Canada’s gross domestic product growth in the first quarter of the year improved the outlook for the currency.