U.S. stocks fell, with the Standard & Poor’s 500 Index (CME:SPH14) headed for a one-month low, while Treasuries and the yen gained as the Federal Reserve said it would make further reductions in economic stimulus and as emerging-market currencies weakened. Gold and natural gas climbed.
The S&P 500 slumped 0.9% to 1,776.30 by 3:45 p.m. in New York, poised for the lowest close since Dec. 13 after European stocks fell. Ten-year Treasury (CBOT:ZBH14) yields dropped seven basis points and the yen gained 0.7%. Russia’s ruble dropped to a record versus its dollar-euro basket, while South Africa’s rand sank 2%. New Zealand’s dollar fell after interest rates were held at a record-low. Gold futures rose the most in a week while natural gas jumped to a four-year high.
The Fed said it will trim its monthly bond buying by another $10 billion to $65 billion, sticking to its plan for a gradual withdrawal from departing Chairman Ben S. Bernanke’s unprecedented easing policy. Turkey doubling its key interest rate and South Africa unexpectedly increasing borrowing costs failed to assuage concern over emerging markets and a slowdown in China, where a private report tomorrow may firm signs that manufacturing is contracting in Asia’s largest economy.
“You’ve got all these problems with the fundamentals of a whole bunch of emerging markets,” Brian Barish, president of Denver-based Cambiar Investors LLC, which manages $9 billion, said in a phone interview. “When you have this sort of thing happening, where the selling is indiscriminate, you recognize this is a wave. You let it crash over you. You need to just let it happen and not get fixated on trying to trade around it.”
Fed policy makers pressed on with a reduction in the purchases intended to speed the U.S. economy’s recovery from the worst recession since the Great Depression, even after payroll growth slowed in December and amid the rout in emerging-market currencies. Three rounds of Fed monetary stimulus helped the S&P 500 rise as much as 173% from a 12-year low in 2009.
Turkey and South Africa’s actions on rates followed central banks from India to Brazil that also tightened monetary policy to bolster their currencies.
All but eight of 24 developing-nation currencies tracked by Bloomberg weakened, with the rand, Hungarian forint, Mexican peso and Brazilian real leading declines. The South Africa Reserve Bank unexpectedly raised the repurchase rate to 5.5% from 5%, following Turkey’s decision to increase its one-week repo rate to 10% from 4.5% at a late- night emergency meeting.