(Bloomberg) -- Treasuries and gold fell, while the dollar climbed, as improving economic data fueled speculation the Federal Reserve will taper stimulus in coming months. U.S. stocks recovered from early losses to trade little changed.
Rates on 10-year Treasury notes increased for a second day, rising two basis points to 2.56 percent at 11:52 a.m. in New York. Gold futures lost 1.9 percent and silver sank 4.6 percent. The Bloomberg U.S. Dollar Index increased 0.3 percent as Europe’s shared currency slid 1 percent to $1.3597, the most since August, after inflation in the region dropped to a four- year low. The Standard & Poor’s 500 Index, which retreated from a record yesterday, was little changed at 1,763 after dropping as much as 0.4 percent earlier.
The Fed maintained its $85 billionin monthly bond purchases yesterday, while saying the economy shows signs of “underlying strength.” Data today showing the biggest jump in a gauge of business activity in more than three decades and a drop in jobless claims added to speculation the central bank will consider tapering stimulus at upcoming meetings.
“The market is re-rating expectations to maybe earlier Fed tapering than consensus,” Andres Garcia-Amaya, New York-based global market strategist at JPMorgan Chase & Co.’s mutual funds unit, said in a phone interview today. His firm oversees $400 billion. “It gave the market a chance to remember that nothing is set in stone and the Fed could actually taper in December or January.”
Fed Dissection
Fed policy makers yesterday signaled diminishing concern over higher borrowing costs. The central bank refrained from providing stronger signals of prolonged stimulus and limited its comment on the costs of budgetary wrangling in Washington to the observation that “fiscal policy is restraining” growth.
The MNI Chicago Report business barometer jumped to 65.9 from 55.7 in September, the biggest monthly increase in more than three decades and the index’s highest reading since March 2011. Readings above 50 signal expansion in business activity. The index exceeded the most optimistic estimate in Bloomberg survey, in which the median projection was 55. A gauge of orders advanced to the highest level in nine years.
First-time applications for jobless benefits decreased to 340,000 in the week ended Oct. 26, Labor Department figures showed. That compared with a median estimate of 338,000 in a Bloomberg News survey.
Economists at Citigroup Inc. and Barclays Plc said yesterday’s Fed policy statement opens the possibility of reduced bond purchases as soon as December. The odds of a taper in January rose to 45 percent, from 25 percent before the decision, according to Citigroup. Economists surveyed by Bloomberg Oct. 17-18 had predicted the Fed would begin paring stimulus in March.
Tapering Inevitable
“Tapering is inevitable, and that’s what you read from last night’s statement,” said Donald Williams, the Sydney-based chief investment officer at Platypus Asset Management Ltd., which manages about A$1.6 billion ($1.5 billion). “When they do start tapering, that will be in a context that the economy is looking good and likely to strengthen further, which should be good for earnings and equities. You can see equity markets correcting, but it’s more negative for gold and commodities.”
Among stocks moving today, Avon Products Inc. plunged 24 percent after the cosmetics company posted a quarterly loss amid bribery probes. JDS Uniphase Corp. tumbled 8.3 percent as the electronic testing and measurement company’s sales forecast trailed analysts’ estimates.
Jobless Claims
Per-share profit has beaten analysts’ estimates at 76 percent of the 356 companies in the S&P 500 that have announced their latest results, according to data compiled by Bloomberg.
The Stoxx 600 has gained 3.7 percent in October in its second monthly advance. Royal Dutch Shell Plc, Europe’s biggest oil company, lost 4.7 percent in London trading, the most since August, as profit missed analyst estimates. Novo Nordisk A/S fell 7.1 percent as earnings for the world’s biggest insulin maker trailed projections. Alcatel-Lucent SA surged 18 percent as the French network-equipment maker said it will beat its cost-cutting target.
The euro declined against 14 of its 16 major counterparts, sliding 1.3 percent versus the yen.
Italian 10-year rates fell five basis points to 4.14 percent. Spain’s dropped two basis points to 4.04 percent, after touching 3.98 percent, the lowest since May 3.
The MSCI Emerging Markets Index fell for the first time in four days, losing 0.9 percent. The gauge has gained almost 5 percent in October in its first back-to-back monthly advance since January. The Shanghai Composite Index fell 0.9 percent as China Minsheng Banking Corp.’s earnings missed estimates. Benchmark gauges in Indonesia, South Korea and Turkey slid more than 1 percent. Indonesia’s rupiah and Malaysia’s ringgit led currencies lower.
China Banks
China’s top four banks posted their biggest increase in soured loans since at least 2010. Nonperforming loans at Industrial & Commercial Bank of China Ltd., China Construction Bank Corp., Agricultural Bank of China Ltd. and Bank of China Ltd. rose 3.5 percent in the three months to Sept. 30 from June to a combined 329.4 billion yuan ($54 billion), according to data compiled by Bloomberg News.
Gold futures for December delivery slid 1.9 percent to $1,323.70 an ounce, and silver dropped for the first time in three days, sliding 4.6 percent to $21.94 an ounce.
The S&P GSCI gauge of 24 commodities fell 0.8 percent, heading for a monthly decline of 1.6 percent after falling 3.8 percent in September. Copper dropped 0.7 percent. The metal used in wires and pipes was heading for the first monthly drop since June.
