Down DayDollar Rises as Stocks, Commodities Fall on Flight From Risk
By Elizabeth Stanton and Justin Carrigan
Dec. 17 (Bloomberg) -- The dollar rose to the highest level in three months against the euro while stocks and commodities slid as investors shunned risky assets on concern the global economic rebound will stall. Treasuries rallied.
The U.S. currency advanced against the 16 most-traded peers at 11:50 a.m. in New York after the Federal Reserve indicated yesterday it may begin to scale back emergency-lending programs. The Standard & Poor’s 500 Index lost 0.8 percent as Citigroup Inc. sold stock at a discount, FedEx Corp.’s profit forecast trailed estimates and initial jobless claims unexpectedly increased. The S&P GSCI Index of 24 commodities fell for the first time in six sessions, losing as much as 1.5 percent.
S&P’s decision yesterday to reduce Greece’s credit rating for the second time this year raised concern among investors that the worst global recession since World War II is still weighing on some economies. At the same time, the Fed said after a two-day meeting that most of its lending programs will expire as scheduled Feb. 1.
“It’s just a bad day of news,” said Kevin Rendino, who manages $10 billion in Plainsboro, New Jersey, at BlackRock Inc., the world’s largest asset manager.
Investors retreated from higher-yielding assets to the safety of dollars, Treasuries and the yen. The dollar climbed as much as 1.4 percent to $1.4329 against the euro, its highest level since Sept. 8, and the yen rose against 13 of the 16 most- traded currencies, adding 1 percent compared with the European currency. Government bonds advanced, with the yield on the 10- year Treasury note falling nine basis points to 3.5 percent.
Commodity Producers, Banks
Raw material producers led declines in U.S. shares as the strengthening dollar reduced demand for commodities as an alternative investment. Citigroup led financial shares lower, while Goldman Sachs Group Inc. and Morgan Stanley also fell as analyst Meredith Whitney cut profit estimates on concern clients are trading less.
Greek bonds tumbled, sending the 10-year note yield up 19 basis points to 5.7 percent. Credit-default swaps linked to Greek debt rose 13.5 basis points to 252.5, according to CMA DataVision, the highest since March.
Greek stocks helped lead the declines in Europe, with the Athens Stock Exchange General Index falling 1.2 percent.
Governments around the world are selling unprecedented amounts of debt, straining budgets just as the economic recovery takes hold. Moody’s Investors Service said in a Dec. 8 report the credit ratings of the U.S. and U.K. may “test the Aaa boundaries.”
‘All Eyes’ on Greece
“All eyes are on Greece, and to a lesser extent Spain and the U.K.,” said Luca Cazzulani, a fixed-income strategist at UniCredit SpA in Milan. “The situation requires a lot of prudence right now” from investors, he said.
The pound dropped 1.2 percent to $1.6132, its lowest level in two months against the dollar, after the Office for National Statistics in London said British retail sales unexpectedly fell in November for the first time since May.
The MSCI Asia Pacific Index fell 1.1 percent. Westpac Banking Corp. dropped 1.1 percent in Sydney and China Overseas Land & Investment Ltd. lost 1.9 percent in Hong Kong.
Hong Kong may suffer “sharp corrections” in asset prices should fund flows reverse, according to the city’s central bank. A rally in the stock market was fueled by an influx of capital fanned by the outlook for China’s economy, the Hong Kong Monetary Authority said in a quarterly report yesterday.
Emerging Markets Drop
The MSCI Emerging Markets Index fell 2 percent, the steepest intraday decline since Dec. 1. Developing-nation bonds dropped, sending the extra yield investors demand to own the debt over U.S. Treasuries up 14 basis points to 3.08 percentage points, according to JPMorgan Chase & Co.’s EMBI+ Index.
All 26 emerging-market currencies that traded against the dollar weakened, led by declines of 2 percent in the Hungarian forint and Polish zloty.
Copper for delivery in three months declined 2.3 percent to $6,874 a metric ton on the London Metal Exchange, leading a retreat in industrial metals.
Crude oil for January delivery fell 1.8 percent to $71.32 a barrel in New York. Gold for immediate delivery dropped 3 percent to $1,104.30 an ounce as the stronger dollar diminished the appeal of the metal.