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Dow Jones Investing

June 26th, 2014

U.S. stocks dropped as data showed consumer spending grew less than forecast in May and a Federal Reserve official said interest rates may rise by March. Treasuries climbed with emerging-market equities and oil slid.

The Standard & Poor’s 500 Index slipped 0.1 percent to 1,957.22 at 4 p.m. in New York, paring an earlier drop of as much as 0.8 percent. The yield on 10-year Treasuries fell three basis points to 2.53 percent, the lowest level in three weeks. The Stoxx Europe 600 Index declined less than 0.1 percent, erasing an earlier advance of 0.3 percent. The MSCI Emerging Markets Index jumped 0.6 percent. Oil slid 0.6 percent to a two-week low and gold futures lost 0.4 percent.

Fed Bank of St. Louis President James Bullard predicted the central bank’s first interest-rate rise will happen in the first quarter of next year as unemployment falls and inflation quickens. U.S. consumer spending grew less than forecast in May while jobless claims decreased last week, reports showed today. Data yesterday indicated America’s economy shrank the most in five years last quarter, underscoring the need for the Fed to support any recovery with accommodative monetary policy.

“There’s a multitude of factors driving the market lower,” Joe Bell, senior equity analyst at Cincinnati-based Schaeffer’s Investment Research Inc., said in a phone interview. “You’re seeing the Fed comments from Bullard come out, a market that’s been on a low-volatility uptrend and uncertainty from a geopolitical standpoint over in Iraq. It’s a perfect storm for different parties to take some money off the table.”

Consumer purchases, which account for about 70 percent of the economy, climbed 0.2 percent after being little changed in April, Commerce Department figures showed. The median forecast of 76 economists in a Bloomberg survey called for a 0.4 percent rise. Incomes advanced 0.4 percent and the saving rate increased to an eight-month high.

Dow Jones Futures: Inflation Gauge

The price measure tied to consumer spending watched by the Fed rose 0.2 percent in May from the prior month and was up 1.8 percent from a year earlier. That was the biggest 12-month increase since October 2012. The central bank’s goal is for inflation to climb at around 2 percent.

Separate data showed fewer Americans filed applications for unemployment benefits last week, a sign of steady progress in the labor market.

Speaking on Fox Business Network, Bullard said the U.S. jobless rate may fall below 6 percent and inflation rise near 2 percent by the end of this year. He said markets may not be fully appreciating how close the Fed is to reaching it goals.

Dovish Member

Stocks tumbled after the market opened, and trimmed declines in the afternoon.

“Janet Yellen is probably the most dovish member of the FOMC and given that she’s in charge and Bullard is not a voting member this year, his perspective may not be able to sway her opinion, if the two disagree come next spring,” Randy Frederick, Austin, Texas-based managing director of trading and derivatives at Charles Schwab Corp., said in an email.

The Federal Open Market Committee is debating how long to keep the benchmark interest rate near zero after completing a bond-purchase program that’s set to end late this year. The committee repeated on June 18 that it expects the rate to remain near zero for a “considerable time” after the purchases end.

Fed Chair Janet Yellen last week said accommodative monetary policy, rising property and equity prices and the improving global economy should lead to above-trend growth.

Dow Jones Futures: Economic Growth

The S&P 500 rose 0.5 percent yesterday as investors shrugged off data showing U.S. gross domestic product shrank 2.9 percent in the first quarter, the worst reading since 2009. The benchmark index closed at a record last week on speculation the economy is recovering from extreme weather at the beginning of the year. The gauge is up 1.8 percent in June, for its fifth straight monthly increase, and 4.5 percent for the quarter.

Treasuries rose for a third day on speculation interest rates will remain lower for longer amid the mixed economic signals.

“The economic news doesn’t generate that high water mark that everyone was expecting that would bring the Fed tightening story back into play,” said Thomas Tucci, managing director and head of Treasury trading in New York at CIBC World Markets Corp.

The U.S. sold $29 billion in seven-year notes at a yield of 2.152 percent, compared with a forecast of 2.136 percent in a Bloomberg News survey of 10 of the Fed’s primary dealers.

Dow Jones Futures: Alcoa Deal

Bed Bath & Beyond Inc. tumbled 7.2 percent today after forecasting profit that was less than analysts’ estimated amid competition from online retailers. Alcoa Inc. gained 2.7 percent as the largest U.S. aluminum producer agreed to buy U.K. aerospace-components maker Firth Rixson Ltd. for about $2.5 billion in stock and cash.

Chicago Board Options Exchange Volatility Index, known as the VIX, slipped 0.4 percent to 11.55. It closed June 18 at its lowest level since 2007. For 48 days, the S&P 500 has failed to post a gain or loss exceeding 1 percent, the longest stretch since 1995.

About 980 million shares changed hands today in the two hours after the start of the U.S. versus Germany soccer match at noon New York time, 21 percent less than the average for the rest of the year before the World Cup started on June 12, data compiled by Bloomberg show.

Dow Jones Futures: Russell Revisions

Trading is likely to get a boost tomorrow, when Russell Investments concludes the annual revisions to its equity benchmark gauges. Russell’s U.S. stock indexes, including the Russell 1000 Index and the Russell 2000 Index, are used as benchmarks for $5.2 trillion in assets, according to the company’s website. In the previous two years, the reconstitution day ranked in the top two busiest trading sessions, data compiled by Bloomberg show.

European stocks declined for a fifth day as the disappointing U.S. data outweighed increased mergers-and-acquisitions activity. The Stoxx 600 is 2.2 percent below a six-year high reached on June 10.

Barclays Plc, which was sued in New York over its private trading venue, slipped 6.5 percent to its lowest price since November 2012. Dialog Semiconductor Plc climbed 2 percent after saying it is exploring a merger with AMS AG. London Stock Exchange Group Plc (LSE) rose 6.1 percent after agreeing to buy Frank Russell Co. for $2.7 billion.

Dow Jones Futures: Emerging Markets

The MSCI Emerging Markets Index, which closed yesterday at the lowest level since June 5, has gained 5.3 percent this quarter, headed for the biggest advance since the period ended in September 2012.

The Shanghai Composite Index (SHCOMP) added 0.7 percent to a one-week high, while the Hang Seng China Enterprises Index of mainland companies listed in Hong Kong climbed 1.5 percent, rebounding from a four-week low.

China’s first companies to go public in four months jumped 44 percent on their first day of trading. Shandong Longda Meat Foodstuff Co., Wuxi Xuelang Environmental Technology Co. and Feitian Technologies Co. surged by the maximum limit in Shenzhen after each of their initial public offerings were oversubscribed by at least 120 times.

The pound gained against all but five of its 31 major counterparts. Bank of England governor Mark Carney said the biggest risks to Britain’s recovery stem from the housing market as he introduced measures to limit riskier mortgages and prevent an unsustainable buildup of consumer debt.

The announcement is the biggest recent effort by a major central bank to tackle the threat of an asset bubble and avoid a repeat of the 2008 financial crisis.
Gold, Oil

The dollar weakened 0.2 percent to 101.69 yen and added 0.2 percent to $1.3607 versus the euro.

Gold lost 0.4 percent for the first drop in seven sessions.

Crude oil fell on signs that the insurgency in Iraq won’t curb output and as U.S. stockpiles climbed. West Texas Intermediate dropped 0.6 percent to $105.84 a barrel, paring a steeper decline of 1.4 percent from earlier in the day. Futures are still up 7.5 percent this year.

Iraq’s crude exports will rise next month, Oil Minister Abdul Kareem al-Luaibi said yesterday. Government forces repelled an attack by the Sunni Islamic State in Iraq and the Levant on the Baiji refinery north of Baghdad. U.S. crude stockpiles rose by 1.74 million barrels to 388.1 million last week, the Energy Information Administration said yesterday.

“Prices are retreating because the insurgency hasn’t had a material impact on the Iraqi production and we might be looking at a gain in exports,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “Prices are consolidating here just below the nine-month highs.”

- Joseph Ciolli and Oliver Renick in New York at Bloomberg.