Dollar Gains as Stocks Fluctuate With Bonds Before Fed 

The dollar gained against most major currencies while Treasuries and German bunds fluctuated with European stocks before the Federal Reserve decides monetary policy. China’s yuan dropped to the lowest in 11 months amid concern that more companies will default on debts.

The U.S. currency strengthened 0.1 percent against the yen and the euro at 8:15 a.m. in London, with the Bloomberg Dollar Spot Index climbing a second day. The MSCI All Country World Index and Stoxx Europe 600 Index were little changed. Treasuries traded in the narrowest range in more than a week and 10-year German government notes were little changed. A measure of Chinese shares in Shanghai and Shenzhen slid 0.8 percent and the yuan weakened to 6.2 to the dollar.

The Fed will press on with cuts to its bond buying program and switch to qualitative guidance for assessing interest rates, according to economists surveyed by Bloomberg before a two-day meeting that ends today. Russia’s ruble climbed a fourth day as President Vladimir Putin makes the annexation of Crimea official while the U.S. and U.K. push for more sanctions. Chinese stocks declined after a private builder collapsed amid efforts by the government to allow market forces to play a greater role in the world’s second-largest economy.

“Investors still remain highly cautious,” Matthew Sherwood, who helps manage about $25 billion as the Sydney-based head of investment markets research at Perpetual Ltd., said by phone. “Risk assets have recovered most of their lost ground since the Ukraine crisis was sparked a few weeks ago but there’s still a lot of volatility. The Fed will probably water down their forward guidance and keep U.S. interest rates low for at least another 18 months.”

Forward Guidance

Benchmark 10-year Treasury yields were little changed at 2.67 percent after yesterday falling two basis points, or 0.02 percentage point, Bloomberg Bond Trader data showed. The price of the 2.75 percent note due in February 2024 was at 100 23/32.

The Fed’s Open Market Committee will further scale back asset purchases today, reducing purchases by $10 billion for the third time, according to economists surveyed by Bloomberg March 14-17. Policy makers will scrap a 6.5 percent unemployment-rate target in favor of a range of economic indicators, 76 percent of the economists said.

Fed officials have said they will probably hold the central bank’s target interest rate near zero “well past the time” that unemployment falls below 6.5 percent, “especially if projected inflation” remains below its longer-run goal of 2 percent.

Inditex Openings

Standard & Poor’s 500 Index (SPX) futures were little changed today. About three stocks rose for every two that fell on the Stoxx 600, which is flat for the year. Five of 19 industry groups on the measure declined.

Inditex SA surged 3.9 percent as the Spanish owner of the Zara clothing chain said it expects to open about 500 stores. The company reported the slowest profit growth in five years.

Krones AG (KRN), a German production-machinery maker, climbed 1.6 percent after reporting a pretax profit 73 percent higher than estimates. The company proposed a dividend of 2 euro a share.

The Hang Seng Index closed 0.1 percent lower in Hong Kong, with a gauge of developers rising for the first time in six days. The Hang Seng China Enterprises Index added 0.2 percent. The CSI 300 Index dropped to the lowest in a week and the Shanghai Composite Index retreated 0.2 percent.

The yuan weakened beyond 6.20 per dollar for the first time since April amid concern about rising financial risks.

Default Management

China’s central bank said it didn’t participate in an “emergency meeting” yesterday on the collapse of Zhejiang Xingrun Real Estate Co., a developer with 3.5 billion yuan ($565 million) of debt. The failure to pay back debts comes two weeks after the country saw its first onshore bond default and coincides with efforts by the government to reduce risks in the financial system.

“The manner in which the Chinese authorities resolve these defaults will have important implications on the industry,” Fitch Ratings Ltd. analysts Andy Chang and Kalai Pillay said in a note today. “We believe the authorities will force shareholders and some of the lenders, especially from the non-traditional sectors, to realize their losses.”

Nickel climbed 0.9 percent today after rallying yesterday on speculation Russian supplies will be disrupted at a time when some shipments of the metal are already banned in Indonesia. Prices have surged more than 20 percent from the $13,285-a-ton level reached Nov. 27, meeting the common definition of a bull market.

Putin Speech

Russia was slapped with sanctions from the U.S. and the EU after supporting a bid by Crimea, a breakaway region of neighboring Ukraine, to rejoin its territory. The peninsula voted in favor of becoming a part of Russia in a March 16 referendum, which was called after Ukrainian President Viktor Yanukovych fled the country following protests.

During a Kremlin speech to Russian lawmakers that was met with cheers and standing ovations, Putin yesterday blamed Western encroachment for forcing him to take control of Crimea, a move he described as reversing a historic wrong.

Mosocw’s Micex index dropped 0.7 percent snapping a two-day rally. The ruble climbed 0.4 percent to 36.0725 against the dollar, the highest since March 6, and to 50.2237 versus the euro.

“The softly, softly approach from the European Union on Russia suggests that major sanctions are, in the interim, unlikely and the market is giving risk the benefit of the doubt,” Evan Lucas, a market strategist in Melbourne at IG Ltd., wrote in an e-mail to clients. “This dulling down of the situation has seen the market’s attention move away from Eurasia and back to the U.S. as the FOMC approaches,” he said, referring to the Fed Open Market Committee.

Soybean futures rose as much as 1.7 percent to $14.42 a bushel in Chicago, the highest since March 10, climbing for a third day on speculation that demand for U.S. supplies is rising amid surging shipments to China.

(By Nick Gentle and Jonathan Burgos)

Source: bloomberg

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