U.S. stocks fell from a two-month high, while the dollar and German bonds climbed as investors assessed the impact of China’s growth plans and the potential for European Central Bank stimulus measures this week.
The Standard & Poor’s 500 halted its longest rally since October, while miners and banks led the Stoxx Europe 600 Index lower from a five-week high. Treasuries fell, with the 10-year note yield rising to the highest level in a month, while German bunds climbed on expectation the ECB will boost bond purchases. Crude extended last week’s gains, while iron ore delivered the biggest one-day gain on record.
The three-week rally in global equities and commodities stalled as investors await Thursday’s ECB meeting, where policy makers are widely expected to deliver a package of easing measures to revive euro-area growth and inflation. China’s lowered their goal for economic expansion and said they are planning a record-high budget deficit as they seek to stoke the world’s second-largest economy. U.S. jobs data on Friday added to a picture of relative health in the American economy, reviving bets the Federal Reserve will raise rates again this year.
“China is serving more of the same solution, more stimulus, but it just makes things worse later and it’s becoming apparent that it cannot sustain the official growth rate,” said Nicola Marinelli, a fund manager at Pentalpha Capital Ltd. In London. “The ECB might also disappoint, GDP growth remains sub-par and we don’t know what to do about it, while a higher oil price means higher inflation soon and hence less headroom for central banks.”
The S&P 500 fell 0.4 percent at 9:31 a.m. in New York, halting a four-day rally that had pushed the gauge above its average price for the past 50 and 100 days. The index has jumped more than 8.5 percent from a Feb. 11 low, though it remains down almost 3 percent for the year.
Banks, telecoms firms and carmakers fell more than one percent as all 19 industry groups on the European equity benchmark declined. BASF SE slid 0.9 percent after people familiar with the matter said it is considering a counter bid for DuPont Co., which has agreed to merge with Dow Chemical Co. Electricite de France SA sank 7 percent as its chief financial officer quit following a disagreement with the company’s chief executive officer.
The Bloomberg Commodity Index headed for a sixth day of gains, even as copper declined. Crude advanced to a two-month high in New York, and rubber entered a bull market in Asia.
West Texas Intermediate crude climbed 1.7 percent to $36.53 a barrel in New York. It’s headed for the highest close since Jan. 4. Speculators reduced their short positions by the most in 10 months in the week ended March 1, Commodity Futures Trading Commission data showed.
Iron ore soared the most ever as Chinese support measures boosted the outlook for steel and spurred speculation that some investors who’d bet against the market had been caught out. Ore with 62 percent content delivered to Qingdao jumped 19 percent to $63.74 a dry metric ton, data on Metal Bulletin Ltd.’s website show.
Zinc dropped 05 percent while copper sank for the first time in a week.
The euro fell for the first time in four days as investors braced for the ECB’s policy decision. Nearly three-quarters of the economists in a Bloomberg survey predict the central bank will expand monthly quantitative easing, and all but one see the deposit rate being cut further below zero.
“You have the ECB policy which is generally going to be cutting rates, expanding QE and that tends to weaken the euro,” said Richard Cochinos, London-based head of Europe Group-of-10 currency strategy at Citigroup Inc. The world’s biggest foreign-exchange trader sees the euro “trading below $1.05 and towards parity by year end, but the path there is neither straight nor direct and the ECB is important.”
The shared currency weakened 0.6 percent to 124.43 yen. The dollar weakened 0.2 percent to 113.53 yen.
France’s bonds were the biggest gainers in euro-area debt markets, with the 10-year yield declining three basis points to 0.63 percent.
“Poor risk appetite coupled with the expectation that the ECB will deliver this time is driving bonds up,” said Arne Lohmann Rasmussen, head of fixed-income research at Danske Bank A/S in Copenhagen. “People are moving back into fixed income” amid falling global equity markets and concern that China won’t meet its growth target, he said.
The yield on U.S. 10-year Treasury notes climbed four basis points to 1.91 percent, after adding four basis points on Friday. The cost of insuring investment-grade corporate debt against default rose for the first time in eight days. The Markit iTraxx Europe Index of credit-default swaps climbed one basis point to 94 basis points. The Markit iTraxx Europe Crossover Index of swaps on junk-rated companies increased ten basis points to 383 basis points.
The MSCI Emerging Market Index rose for a seventh day, its longest winning streak since April. Shares in Poland, Russia and Dubai added at least 0.7 percent. Julius Baer Group Ltd. upgraded emerging stocks from underweight to neutral, with Zurich-based analyst Heinz Ruettimann saying “the time has come to be tactically less pessimistic.”
A gauge of twenty emerging currencies declined for a first time in six days. The Hungarian forint and Turkish lira led losses in currencies with drops of at least 0.5 percent versus the dollar.
China’s foreign-exchange reserves fell at a slower pace last month as the nation’s financial markets stabilized and policy makers took more steps toward shoring up growth. The world’s largest currency hoard dropped by $28.6 billion to $3.2 trillion in February, the People’s Bank of China said in a statement onMonday.