The dollar strengthened to a 14-month high and commodities declined to the lowest level in five years after data added to evidence China’s economy is slowing. Russia’s ruble weakened to a record after the European Union and U.S. imposed new economic sanctions.
The Bloomberg Dollar Spot Index rose 0.1% at 8:33 a.m. in New York. The Bloomberg Commodity Index fell 0.4% as oil declined 0.9% and copper slipped 0.4%. Emerging market stocks dropped for an eighth day, the ruble (CME:R6V14) weakened for a third day and U.K. natural gas (NYMEX:NGV14) advanced the most in two weeks. Standard & Poor’s 500 Index (CME:SPZ14) futures and the Stoxx Europe 600 Index were little changed.
Royal Bank of Scotland Group Plc cut its 2014 estimate for Chinese economic expansion to 7.2% from 7.6% after August industrial output growth was the weakest since the global financial crisis. Investors assessed regional manufacturing data in the U.S., where the fastest rise in retail sales in four months bolstered speculation the Federal Reserve will signal moves toward interest-rate increases and reduce its quantative easing program of bond purchases at a meeting this week. U.S. Secretary of State John Kerry is scheduled to meet Russian Foreign Minister Sergei Lavrov today.
“The strength of the dollar is something we’ve been anticipating, knowing that we have QE finally ending,” Dan Morris, a global investment strategist at TIAA-CREF Asset Management, said in an interview on Bloomberg Television’s “On The Move” with Jonathan Ferro in London. “You do see a negative reaction on the part of emerging markets when those currencies do start to weaken against the dollar, with cash flowing back to the U.S.”
Speculation that a strengthening U.S. economy will prompt the Fed to bring forward its timeline for raising borrowing costs is pushing down Treasuries and boosting the allure of the dollar (NYBOT:DXZ14). The U.S. 10-year note (CBOT:ZNZ14) yield was at 2.60% after touching 2.62% today, the highest since July 7, and the Bloomberg Dollar Spot Index advanced to its strongest level since July 2013.
Spain’s bonds rose, pushing 10-year yields three basis points lower to 2.32%.
Australia’s dollar (CME:A6Z14) fell below 90 cents for the first time since March and South Africa’s rand slid for a sixth straight day today. Malaysia’s ringgit led losses in Asia as it fell by the most since March and a gauge of emerging-market currencies slid to the lowest since 2009.
The krona (CME:SKZ14) was little changed at 9.2365 against the euro today. The three-party Social Democratic opposition bloc won 43.6% of the vote in an election, versus 39.5% for the government’s coalition, with 97% of ballots counted. The Social Democrats must now garner support from other parties to form a majority.
Unprecedented stimulus by central banks helped swell investments in emerging markets to $1.4 trillion as of May, raising the risk that those markets may destabilize when interest rates rise or their exchange rates fall, the Bank for International Settlements said in a report yesterday. The Fed has created a committee led by Vice Chairman Stanley Fischer to monitor financial stability, reinforcing its efforts to avoid the emergence of asset-price bubbles.
The Bloomberg Commodity Index declined as much as 0.4% to the lowest since July 29, 2009. West Texas Intermediate oil (NYMEX:CLV14) dropped to $91.40 a barrel and Brent crude (NYMEX:SCV14) fell to $96.80 a barrel. Copper retreated to $6,812.25 a metric ton. China is the biggest buyer of energy and industrial metals. U.K. natural gas for October gained as much as 4.6% on concern an escalation of fighting in Ukraine may disrupt flows from Russia to Europe.
The MSCI Emerging Markets Index slid 0.8%, extending its longest run of losses since a 10-day rout ended Nov. 13.
The ruble weakened as much as 1.3% to 38.23 per dollar. Ukraine’s July 2017 Eurobond fell for a second day, sending the yield 27 basis points higher to 13.09%.
Kerry will meet with Lavrov at a conference on Iraq that will take place in Paris. Russia still has more than 3,000 soldiers inside Ukraine and about 25,000 troops along the border, according to the nation’s government. The U.S. and other NATO countries are commencing military exercises in the country today.
The U.S. on Sept. 12 expanded sanctions against Russia to include OAO Sberbank, the country’s largest bank, because of the fighting in eastern Ukraine. The EU added 15 companies, including Gazprom Neft, OAO Rosneft and OAO Transneft, and 24 people to its own list of those affected by its restrictions.
The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong slid 1.6% to a five-week low. The Shanghai Composite Index added 0.3%.
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