U.S Dollar weakens on GDP report

U.S. stocks fluctuated while the dollar weakened after data showed the world’s largest economy stagnated last quarter before a Federal Reserve decision on stimulus policy. Commodities sank as oil declined.

The Standard & Poor’s 500 Index (CME:SPM14) rose less than one point at 10:28 a.m. in New York, after earlier sliding 0.3 percent. An index of Internet stocks lost 0.7 percent as Twitter Inc. dropped to the lowest level since its market debut and EBay Inc. retreated after reporting results. The MSCI Emerging Markets Index lost 0.5 percent. The dollar weakened 0.4 percent to $1.38639 per euro and Treasuries advanced. The S&P GSCI gauge of 24 commodities sank 1.1 percent as oil fell below $100 a barrel.

Economic growth in the U.S. stalled in the first quarter as harsh winter weather chilled business investment, exports dropped and inventories climbed at a slower pace. The Fed will probably reduce bond buying for a fourth straight month, analysts said in a Bloomberg survey. The International Monetary Fund cut its growth forecast for Russia, while President Vladimir Putin said yesterday sanctions may threaten U.S. and European involvement in the energy industry.

“We had GDP number that was a lot lower than expected, which is weighing on stocks,” Matt Maley, a Boston-based equity strategist with Miller Tabak & Co., said in a phone interview. “The key thing today is the Fed announcement and statement. We’ll see just how data-dependent the Fed is. There’s nothing to say today’s weakness means they’ll pull back on their tapering program.”

 

Internet Stocks

The S&P 500  yesterday closed 0.7 percent away from its record reached April 2 as Internet stocks rallied for the first time in five days. The gauge has advanced 0.3 percent in April.

The Dow Jones Internet Index fell 0.7 percent today, extending its slide from a March high to 17 percent. The Nasdaq 100 gauge of the biggest technology stocks erased most of a 0.7 percent decline. It’s still down 0.7 percent this month after concern that valuations have outpaced earnings growth spurred a selloff of the shares.

Investors added $3.1 billion to U.S. equity exchange-traded funds yesterday, the biggest single-day inflow since April 8, data compiled by Bloomberg show. Health-care stocks absorbed the most money among industry ETFs, taking in $177 million and paring its five-day net outflow to $399 million.

U.S. gross domestic product grew at a 0.1 percent annualized rate from January through March, compared with a 2.6 percent gain in the prior quarter, the data showed. The median forecast of 83 economists surveyed by Bloomberg called for a 1.2 percent increase.

 

Little Heed

Gains in retail sales, employment and manufacturing at the end of the quarter indicate the setback will be temporary, so Fed policy makers meeting in Washington may take little heed. A private payrolls report today showed companies added more workers in April than at any time in the previous five months.

Policy makers will probably lower bond buying to $45 billion a month at the two-day meeting that concludes today, according to the median of 45 estimates compiled by Bloomberg. The Federal Open Market Committee releases its policy statement at 2 p.m. in Washington.

The Bloomberg Dollar Spot Index dropped 0.2 percent, extending this month’s decline to 0.7 percent. The U.S. currency slid 0.4 percent against the yen to today.

The ruble slid 1.5 percent in April. That compares with a 3.1 percent monthly gain for South Korea’s won and a 1.6 percent advance for Brazil’s real.

 

Emerging Stocks

The MSCI emerging-nation gauge trimmed April’s increase to 0.1 percent as Russia’s gauge headed for a 5.1 percent loss, the fourth monthly drop. The EU this week expanded sanctions against individuals close to Putin and companies tied to them, following similar steps by the U.S.

Russia’s economy will probably grow 0.2 percent this year, down from an earlier forecast of 1.3 percent, Antonio Spilimbergo, the IMF’s mission chief for Russia, said today in Moscow. The deceleration in growth is linked to the geopolitical situation, the risk of sanctions escalating and structural issues, he said.

Putin said yesterday the government has prepared retaliatory measures for the sanctions, though it doesn’t consider them necessary for now.

 

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