July 17 (Bloomberg) -- Treasuries rose while stocks fluctuated and the dollar strengthened as investors parsed testimony from Federal Reserve Chairman Ben S. Bernanke for clues to the central bank’s plans for stimulus.
Ten-year Treasury yields dropped five basis points to 2.48 percent, a two-week low, while the Standard & Poor’s 500 Index increased less than 0.2 percent as of 2:53 p.m. New York time after yesterday retreating from a record. The Bloomberg Dollar Index, a gauge against 10 major currency, rose 0.2 percent after earlier reversing a 0.5 percent gain. The yen slid versus all 16 major peers while the pound rallied versus 14. Gold fell 1.2 percent and the S&P GSCI Index of commodities fluctuated.
Treasuries and S&P 500 futures turned higher earlier as Bernanke’s prepared testimony to the House Financial Services Committee said the central bank’s asset purchases "are by no means on a preset course" and could even be expanded if economic conditions warrant. U.S. equities pared gains as Bernanke began responding to lawmakers’ questions. The Bank of England minutes released today showed a unanimous vote to leave bond buying unchanged, and the Bank of Japan refrained from expanding operations to stem volatility in debt markets.
Bernanke’s comments "were a little more dovish than the market was expecting because he did really emphasize the data dependency," said David Chalupnik, head of equities for Nuveen Asset Management who helps oversee 126 billion in Minneapolis, said in a telephone interview. ’’If we don’t see improvement in the economy, that tapering may be pushed out relative to expectations. That would be good for the stock market and it would cause 10-year rates to come in.’’
The U.S. economy maintained a "modest to moderate pace" of growth in recent weeks, bolstered by industries from housing to manufacturing, the Fed said today.
"Residential real estate and construction activity increased at a moderate to strong pace in all reporting districts," the Fed said in its Beige Book business survey, which is based on anecdotal reports from its 12 regional banks. "Manufacturing expanded in most districts since the previous report."
Equities and bonds have been whipsawed in recent weeks amid conflicting signs of whether the Fed will scale back asset purchases. The MSCI All-Country World Index posted the biggest five-day gain since November last week after Bernanke said monetary policy would remain accommodative for the "foreseeable future."
The S&P 500 snapped an eight-day winning streak yesterday as Fed Bank of Kansas City President Esther George, who has voted against the central bank’s bond-buying program this year, told Fox Business Network that cuts to quantitative easing are appropriate as the U.S. economy gathers momentum. The index is still up 18 percent for the year after recouping a 5.8 percent slide between May 21 and June 24, which was triggered when Bernanke told Congress the central bank could begin reducing its quantitative easing this year.
Some 21 companies, including Bank of America Corp. and EBay Inc., were scheduled to release results today. Per-share earnings topped estimates at about 71 percent of the 49 companies in the S&P 500 that have released results so far in the reporting season, data compiled by Bloomberg show.
Bank of America and Bank of New York Mellon Corp. gained at least 2.2 percent as second-quarter profits increased more than analysts estimated. American Express Co., the biggest U.S. credit-card issuer by customer purchases, retreated 1.8 percent after a report that the European Union may cap transaction fees.
Caterpillar Inc. dropped 1.9 percent after short seller Jim Chanos told the CNBC Institutional Investor Delivering Alpha Conference that the company is being hurt by the slowdown in commodities demand.
The Stoxx Europe 600 Index added 0.6 percent, recovering most of yesterday’s decline. BHP Billiton Ltd. advanced 2 percent as the world’s biggest mining company said fourth- quarter iron ore production climbed 17 percent. L’Oreal SA, the largest cosmetics maker, fell 0.6 percent in Paris trading after second-quarter sales growth missed estimates.
The U.S. dollar was weaker against seven of 16 major peers and stronger against the rest. Goldman Sachs Group Inc. said rivals have been too aggressive in anticipating tighter Fed monetary policy. Goldman Sachs predicted the dollar will depreciate 7 percent to $1.40 per euro over the next 12 months, from $1.3107 today, while the median estimate of 66 analysts surveyed by Bloomberg News is for a 5 percent jump to $1.24 by mid-2014.
The yen slipped 0.4 percent to 99.50 per dollar. The Bank of Japan said the economy is picking up and will resume a moderate recovery, according to minutes of its June meeting. It refrained from expanding operations to stem volatility in debt markets at its June meeting, surprising analysts and investors. An extension may cause misunderstanding, some members said, according to the meeting minutes.
The pound was up 0.4 percent at $1.5219 after earlier rising as much as 0.7 percent and the yield on 10-year gilts increased three basis points to 2.29 percent. U.K. unemployment claims fell at their fastest pace in three years in June, adding to evidence the economic recovery is gaining momentum. Jobless claims fell 21,200 from May to 1.48 million, the biggest drop since June 2010, the Office for National Statistics in London said today.
The S&P GSCI gauge of 24 commodities fluctuated between gains and losses as silver, lead, copper and zinc lost at least 1.5 percent, while coffee and nickel led gains. West Texas Intermediate oil drifted between gains and losses around $106 a barrel.
A gauge of U.S. corporate credit risk fell to the lowest level since May. The Markit CDX North American Investment Grade Index, a credit-default swaps benchmark that investors use to hedge against losses or to speculate on creditworthiness, decreased 1.5 basis points to a mid-price of 76.4 basis points at 11:34 a.m. in New York, according to prices compiled by Bloomberg. Earlier it fell to 76, the lowest intraday level since May 30.
--With assistance from Haslinda Amin in Singapore, Shelley Smith in London and Craig Torres in Washington. Editors: Michael P. Regan, Jeremy Herron
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