Dollar falls as commodities, emerging markets jump

BLOOMBERG

The dollar sank to a five-month low, commodities gained with emerging markets, and government bonds advanced as central banks from the U.S. to Norway indicated a willingness to keep monetary policy accommodative. Developed-market stocks sank on concern that the stimulus is failing to boost growth and corporate earnings.
The Bloomberg Dollar Spot Index fell a second day after the Federal Reserve scaled back expectations for the path of interest-rate increases. Copper and zinc — which are traded in dollars — added at least 2.1 percent, while Brent traded above $40 a barrel. The rally in commodities helped the MSCI Asia Pacific Index post its biggest increase since January. Sovereign bonds rallied. European and Japanese shares fell, and stock-index futures indicate a lower open in the U.S.
“To see so much green as a commodity investor really doesn’t happen very often, and it’s all down to the Fed and the weaker dollar” said Fiona Boal, director of commodity research at Fulcrum Asset Management in London, which oversees $3.7 billion. Actions by central banks underscore concern that the global economy isn’t improving after almost $9 trillion was wiped off the value of global stocks in the first six weeks of the year. Fed Chair Janet Yellen said on Wednesday that the general slog of growth world-wide is why “a slightly lower path for the federal funds rate will be appropriate to achieve our objectives.” Norway cut rates Thursday, following similar moves in recent weeks by the European Central Bank and Bank of Japan. Switzerland and the U.K. left interest rates unchanged.

Currencies
The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major peers, sank 0.8 percent at 8:14 a.m. in New York, after losing 1.1 percent in the last session.“Currency reaction suggests market expectations for the Fed’s rate outlook were slightly more bullish,” Hiroshi Kurihara, chief U.S. economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “The dollar’s been sluggish despite some positive signs over growth, hinting that it’s sensitive to negative news and that its advance may not be strong even as a rate hike approaches.”
Brazil’s real led gains among emerging-market currencies, jumping 2.1 percent. South Korea’s won surged 1.7 percent. Australia’s dollar advanced 0.7 percent after the nation’s jobless rate unexpectedly declined, while New Zealand’s currency strengthened 1.3 percent after fourth-quarter economic growth beat projections. Indonesia’s rupiah gained 1.3 percent after the central bank cut interest rates as expected at a policy meeting on Thursday.
The yen strengthened 0.8 percent versus the dollar, while the British pound rose 1 percent and Switzerland’s franc gained 0.7 percent. The Bank of England left interest rates unchanged on Thursday and maintained current stimulus levels, while the Swiss National Bank stuck with its ultra-loose monetary policy. The Norwegian krone appreciated 0.6 percent after a cut in borrowing costs.

Commodities
The Bloomberg Commodity Index, which measures returns on 22 raw materials, climbed as much as 1.7 percent, headed for its highest close in three months.
All six metals advanced on the London Metal Exchange, supported by a weakened U.S. currency. Copper for delivery in three months jumped 2.1 percent to $5,036 a metric ton as exchange inventory fell 3.7 percent, the biggest decline since May 2014. Gold for immediate delivery climbed 0.4 percent to $1,266.82 an ounce.
Brent crude oil climbed 0.8 percent to $40.64 a barrel. U.S. output slid to the lowest level since November 2014 and inventories expanded by 1.3 million barrels, the smallest increase in five weeks, data showed Wednesday. Major oil-producing nations plan to meet April 17 in Doha to discuss a commitment to freezing output, Qatar’s energy minister said.

Emerging Markets
The MSCI Emerging Markets Index of stocks jumped 2.6 percent to the highest in more than three months. Benchmarks in Russia, Dubai, Abu Dhabi and South Africa advanced at least 1.2 percent as commodities rose. The Hang Seng China Enterprises Index of mainland stocks listed in Hong Kong climbed 2.4 percent to a two-month high and the Shanghai Composite Index rose 1.2 percent.
A gauge of 20 developing-nation currencies climbed for a second day, rising 0.7 percent. The index is up 2.8 percent since Dec. 31, heading for its biggest quarterly gain since 2012, led by a 7.3 percent rally in Russia’s ruble and a 5.9 percent climb in Brazil’s real.
Malaysia’s ringgit advanced 1.9 percent, the biggest advance in a month, and the ruble rose to the strongest since Dec. 4. South Africa’s rand was steady as a survey showed analysts split on whether the central bank will raise rates or keep them on hold.

Bonds
The Fed’s lowering of its projected path for interest-rate increases fueled gains in fixed-income securities. Rates on 10-year U.S. Treasuries fell five basis points to 1.86 percent.
Italy’s 10-year bond yield fell six basis points to 1.28 percent. Benchmark German 10-year bund yields slid eight basis points to 0.23 percent, while those on similar-maturity Spanish debt declined eight basis points to 1.42 percent. The yield on U.K. 10-year gilts fell nine basis points to 1.43 percent.
“We’ve got strength in bonds across the board,” said Marius Daheim, a senior rates strategist at SEB AB in Frankfurt. “For the time being, the Fed has made the headlines. If these recession fears we had at the start of the year start to fade away even more, maybe that would put some downward pressure on Treasuries and European bond markets.” Japan’s 10-year bonds yielded minus 0.06 percent. The government sold 20-year debt at an average yield of 0.427 percent, a record low.
South Africa’s 10-year bonds rose for the first time in four days, pushing their yield down by 36 basis points to 9.08 percent. The securities slid over the last three days amid worsening political turmoil that’s seen Finance Minister Pravin Gordhan caught up in a police probe and accusations of cronyism leveled at President Jacob Zuma’s administration.
The cost of insuring investment-grade corporate debt against default fell for the first time this week. The Markit iTraxx Europe Index of credit-default swaps dropped three basis points to 74 basis points. An index of swaps on junk-rated companies declined 12 basis points to 314 basis points.

Stocks
The Stoxx Europe 600 Index lost 1.1 percent, wiping out an advance of as much as 0.4 percent as the euro rose against the dollar.
A gauge of lenders fell for a third day, led by Banco Popolare SC. Glencore Plc and BHP Billiton Ltd. rallied at least 7 percent, boosting a gauge of commodity producers by the most in almost two weeks.
British American Tobacco Plc and Svenska Handelsbanken AB and 11 other Stoxx 600 companies traded without the right to dividends today, shaving 0.2 point off the benchmark gauge.
Deutsche Lufthansa AG fell 6 percent after the carrier forecast weak earnings growth this year, as low ticket pricing meant it couldn’t fully benefit from cheap oil prices.
Standard & Poor’s 500 Index futures fell 0.3 percent, indicating equities will retreat from their highest level this year.