U.S. Stocks Fluctuate With Bonds Before Fed Rate Decision

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By Cecile Vannucci and Oliver Renick

U.S. stocks fluctuated, after the Dow Jones Industrial Average briefly topped a record, as investors awaited the Federal Reserve’s policy decision. Emerging-market shares rallied after China’s central bank boosted stimulus, while oil fell with copper.

The Standard & Poor’s 500 Index rose 0.1 percent at 12:01 p.m. in New York. The Dow added 0.1 percent as DuPont Co. surged. The yield on Treasury 10-year notes slipped two basis points to 2.57 percent. The Stoxx Europe 600 Index gained 0.5 percent and the MSCI Emerging Markets Index rose 0.8 percent, poised for its first gain after nine losses. The dollar was little changed near a one-week low, while U.S. crude lost 0.7 percent.

The Fed will probably maintain its pledge to keep rates low for a “considerable time” after ending asset purchases. U.S. consumer prices unexpectedly dropped in August for the first time in more than a year. In the euro area, inflation was higher than initially projected. China is injecting 500 billion yuan ($81 billion) into the nation’s largest banks, according to a government official familiar with the matter.

“If you’re on the fence and you see inflation data like that, it could tip one in the favor of dovishness,” Liz Ann Sonders, the New York-based chief investment strategist at Charles Schwab & Co. said by phone. “Fed members don’t get any significant advance lead on the data and they don’t come into these meetings with a predetermined decision.”

Fed Decision

The Fed will give its monetary-policy decisions at 2 p.m. in Washington and Chair Janet Yellen will hold a press conference 30 minutes later. The central bank may reduce monthly bond purchases by $10 billion to $15 billion, keeping it on track to announce an end to the program in October, according to economists forecast.

A Bloomberg News survey of economists published yesterday was almost evenly divided on whether the Fed will retain the “considerable time” reference today. Wall Street Journal reporter Jon Hilsenrath said in a Web video that he thinks policy makers will maintain their pledge to keep benchmark overnight rates low for a “considerable time” after the bank ends its asset purchases.

The consumer-price index dropped 0.2 percent, the first decrease since April 2013, a Labor Department report showed. That’s falling short of the Fed’s target. The median forecast of 83 economists surveyed by Bloomberg called for unchanged.

In the euro area, a report showed that annual inflation was 0.4 percent last month, unchanged from July, according to the European Union’s statistics office. That’s above Eurostat’s Aug. 29 estimate of 0.3 percent.

DuPont, Adobe

The S&P 500 (SPX) advanced today after the index climbed 0.8 percent yesterday, the most since Aug. 18. It closed 0.4 percent below its record reached Sept. 5.

Dupont rallied 4.2 percent, the most in 14 months, after investor Nelson Peltz called for a breakup of the third-largest U.S. chemical company. FedEx Corp. (FDX) rose 3.2 percent after posting first-quarter earnings that beat analysts’ estimates. Adobe Systems Inc. (ADBE) lost 4.3 percent after reporting quarterly sales that missed the average projection.

Longer-maturity securities led gains among Treasuries, with the yield gap between two- and 30-year debt narrowing for the first time in six days.

Traders see a 56 percent chance the Fed will increase its benchmark rate to at least 0.5 percent by July 2015, federal-fund futures data showed yesterday. That compares with a 46 percent probability seen a month ago. Policy makers have kept their target for overnight lending between banks in a range of zero to 0.25 percent since December 2008.

Continue Taper

“The Fed will probably say they will continue to taper quantitative easing to have it end in October or November, and continue low rates for long,” said James Butterfill, head of global equity strategy at Coutts & Co. in London. His firm manages 28.7 billion pounds ($47 billion) globally. “I don’t think we’ll have clarity on when the first rate hike will be. They will leave that one open purely because there have been a few weaker data points.”

In Europe, the Stoxx 600 climbed after falling 1.7 percent from a two-month high on Sept. 4 through yesterday’s two-week low. Seventeen of its 19 industry groups rose today, with banks and commodities producers gaining the most. Air France-KLM Group added 3.6 percent after France’s prime minister asked its pilots to end a strike.

The MSCI Emerging Markets Index rallied for the first time in 10 days as the MSCI AC Asia Pacific Index (MXAP) ended its longest losing streak since June 2002.

PBOC Stimulus

The People’s Bank of China will funnel 100 billion yuan each to the five biggest banks for a three-month period, said the official, who asked not to be identified because the measure hasn’t been formally announced. The credit expansion builds on targeted measures to shore up growth while stopping short of broad-based monetary and fiscal stimulus that increases dangers from bad loans.

The Micex Index (INDEXCF) fell 1.9 percent, its biggest plunge since July 28. Declines were led by AFK Sistema and its oil and mobile-phone businesses, after the holding’s billionaire owner, Vladimir Evtushenkov, was placed under house arrest.

Investors are also watching the final day of campaigning over Scotland’s future in the U.K. before a vote on independence tomorrow. Three polls last night showed the anti-independence group leading the Yes campaign by 52 percent to 48 percent, excluding undecided voters.

The U.K.’s FTSE 100 Index (UKX) slipped 0.2 percent for a third day of declines, while the pound advanced 0.3 percent to $1.6325.

U.K. Data

A report showed today that U.K. unemployment fell to the lowest level in six years. Bank of England policy makers split for a second month, with the majority citing increased risks from Europe and muted inflation pressures supporting the case for keeping the key rate at a record low, according to minutes from their last meeting

The Bloomberg Commodity Index declined 0.3 percent, with aluminum falling 1 percent. Copper sank 0.7 percent advancing 1.2 percent yesterday. China is the biggest buyer of industrial metals.

West Texas Intermediate oil lost 0.7 percent to $94.22 a barrel after jumping 2.1 percent yesterday. U.S. supplies gained 3.67 million barrels in the week ended Sept. 12, the EIA, the Energy Department’s statistical arm, said. Analysts surveyed by Bloomberg had expected a drop of 1.5 million. Brent reversed earlier gains.

To contact the reporters on this story: Cecile Vannucci in London at [email protected]; Oliver Renick in New York at [email protected]

To contact the editors responsible for this story: Lynn Thomasson at [email protected] Jeremy Herron, Cecile Vannucci

 

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