Dollar Weakens as Bonds, Precious Metals Climb on Yellen

(Bloomberg) — The dollar retreated, while bonds advanced with precious metals after Federal Reserve Chair Janet Yellen signaled U.S. interest-rate increases aren’t imminent.

The Bloomberg Dollar Spot Index lost 0.3 percent by 10:25 a.m. in London as the currency declined against all but two of its 16 major peers. Yields on 10-year debt fell from Frankfurt to Tokyo and Sydney and Ireland’s rate dropped below 1 percent for the first time. The Stoxx Europe 600 Index dropped 0.2 percent and Standard & Poor’s 500 Index futures slipped 0.1 percent after the gauge closed at a record on Tuesday. Gold snapped a four-day decline and silver jumped 1.4 percent. U.S. oil headed for its longest slump since July before a report on crude stockpiles.

Bloomberg’s dollar index is set to fall for the first month since June after Yellen made it clear no rate increase is imminent. While a shift in forward guidance would signal the economy has improved to the point where the Fed could raise rates at any meeting, it wouldn’t lock policy makers into an immediate increase, she said. A report will probably show that new-home sales in the U.S. slipped in January, economists said in a Bloomberg survey.

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“The global economic recovery is on track and our base scenario is that a U.S. rate hike will take place in June,” said Daphne Roth, the head of Asian equity research at ABN Amro Private Banking in Singapore, which manages about $ 218 billion. “Of course, the Fed has some flexibility to delay that especially if inflation comes in below target.”

Aussie, Kiwi

The Dollar Spot Index dropped 0.3 percent on Tuesday, reversing a gain of as much as 0.5 percent, after Yellen began speaking. The euro gained 0.2 percent to $ 1.1363, the yen added 0.2 percent to 118.78 per dollar and the pound advanced 0.4 percent to $ 1.5511.

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Portugal’s 10-year yield decreased three basis points, or 0.03 percentage point, to 2.08 percent and touched 2.075 percent, the least since Bloomberg started tracking the data in 1997.

The rate on Irish 10-year securities touched a record-low 0.997 percent on Wednesday, while that on similar-maturity Italian bonds fell one basis point to 1.45 percent in a seventh day of declines. Five-year yields in Italy and Spain also dropped to records.

Three shares fell for a every two that advanced in the Stoxx 600 as automakers and banks fell, while utilities and commodity producers rose.

Telefonica SA slipped 1.1 percent after reporting a decline in fourth-quarter operating profit and writing down the value of its Venezuelan business.

Axa Profit

Axa SA advanced 3.7 percent after France’s largest insurer posted a 12 percent jump in full-year profit, buoyed by higher earnings at its life and savings division. A.P. Moeller-Maersk A/S rallied 6.7 percent after Denmark’s biggest company said it will divest its stake in Danske Bank A/S. St. James’s Place Plc rose 4.8 percent after the U.K. insurer and wealth manager increased its annual shareholder payout by a higher-than-expected 50 percent.

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Hewlett-Packard Co. fell 6.5 percent in early New York trading after the computer maker forecast quarterly and full-year profit that will miss analysts’ estimates. Campbell Soup Co., Target Corp., Lowe’s Cos. and L Brands Inc. are among 12 S&P 500 companies reporting earnings on Wednesday.

S&P 500 futures expiring in March were little changed after the index climbed 0.3 percent to a record. The Nasdaq Composite Index climbed for a 10th straight day, its longest streak since July 2009, closing 1.6 percent away from a record high in March 2000.

The MSCI All-Country World Index advanced 0.2 percent, surpassing its closing record in intraday trading. The gauge is up for a 10th day, the longest stretch in a year.

Emerging Markets

The MSCI Emerging Markets Index added 0.7 percent to the highest level on a closing basis since Nov. 28, as benchmark gauges in South Korea, Taiwan and Turkey rose at least 0.7 percent.

The Malaysian ringgit and South Korean won led currencies higher, climbing at least 1 percent. A gauge of 20 developing-nation currencies increased 0.4 percent, advancing for a second day from a two-week low.

Russia’s ruble advanced 0.4 percent and the dollar-denominated RTS Index was little changed after closing at a most than one-week low on Tuesday.

The Shanghai Composite Index fell 0.6 percent to 3,228.84 at the close, erasing its gain for the year as trading resumed following Lunar New Year holidays. The Hang Seng China Enterprises Index slipped less than 0.1 percent in Hong Kong.

China Manufacturing

A private gauge of Chinese manufacturing unexpectedly signaled expansion. The preliminary Purchasing Managers’ Index from HSBC Holdings Plc and Markit Economics was at 50.1, exceeding the median estimate of 49.5 in a Bloomberg survey and up from January’s 49.7. Numbers above 50 indicate expansion.

Petroleo Brasileiro SA’s American depositary receipts fell 1.5 percent in after-hours trading on Tuesday in New York. The Brazilian state-run oil producer’s credit rating was cut to junk by Moody’s Investors Service.

Moody’s kept a negative outlook on the state-controlled oil producer’s rating after cutting it to Ba2, two levels below investment grade, on Tuesday. The two-step downgrade marks the second cut by Moody’s in less than a month for the company, which is embroiled in a widening graft probe.

Gold climbed 0.7 percent to $ 1,209.09 an ounce after sliding 1 percent the past four trading days. Silver advanced to $ 16.5309 per ounce while platinum and palladium advanced.

West Texas Intermediate crude was 0.4 percent lower after slipping 0.3 percent on Tuesday, a fifth straight decline. Brent, the benchmark contract for more than half the world’s oil, fell 0.3 percent to $ 58.49 in London.

Oil Inventories

U.S. crude inventories probably rose 4 million barrels to 429.6 million last week, a Bloomberg News survey showed before the Energy Information Administration report due Wednesday. Industry data showed supplies climbed by 8.9 million barrels.

U.K. next-month natural gas climbed to a one-week high amid concern a gas payment dispute between Russia and Ukraine will disrupt fuel supplies to the rest of Europe. Gas for delivery next month jumped as much as 4.4 percent to 51.5 pence ($ 0.80) a therm on ICE Futures Europe, the highest since Feb. 18.

To contact the reporters on this story: Nick Gentle in Hong Kong at ngentle2@bloomberg.net; Kyoungwha Kim in Hong Kong at kkim19@bloomberg.net

To contact the editors responsible for this story: Stephen Kirkland at skirkland@bloomberg.net; Stuart Wallace at swallace6@bloomberg.net Stuart Wallace

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