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London - The dollar rose to a six-week high and US stocks slipped after the biggest gain in American retail sales in a year reignited speculation the Federal Reserve may lift rates as early as June. Oil retreated.
The US currency gained versus all but two major peers, as the gap between two- and 10-year Treasury yields fell to the narrowest since 2007, after sales at retailers climbed more than forecast, renewing confidence in the consumer after forecast cuts by Macy’s raised concerns about spending. Financial and consumer shares were the biggest drags on the S&P 500 today amid disappointing earnings. Oil retreated from a six-month high and iron ore fell to a two-month low.
Stocks fell earlier amid signs of lacklustre growth in Europe and Asia and a pull-back in industrial metals. A rally in global equities that added $8.5trn in market value through April has lost momentum this month amid mixed earnings and speculation over the trajectory of borrowing costs in the US Fed chiefs for Boston and Kansas City said on Thursday that the central bank risks stoking an asset bubble by delaying raising interest rates for too long.
“It’s always good to see good economic news,” said Fabian Eliasson, head of US corporate foreign-exchange sales in New York at Mizuho Financial Group. “If you keep having more and more positive news, showing the economy’s becoming solid, a Fed hike is going to come back into play.”
Currencies
The Bloomberg Dollar Spot Index added 0.5%, rising to its highest level since March and poised for a second weekly gain.
Purchases at retailers climbed 1.3% last month, the biggest gain since March 2015, after a revised 0.3% drop the prior month, Commerce Department figures showed on Friday. The median forecast of economists surveyed called for a 0.8% gain. Separate data also showed consumer confidence jumped in May to the highest level in almost a year.
Before Friday, traders had been pushing back bets on when the Fed will raise rates, after officials in March cut their projected 2016 pace to two hikes from four. Traders are pricing in a 6% chance the Fed will act in June, up from 4% before the retail sales data. For December, the odds have climbed to 58%, compared with 53% yesterday.
The Aussie was down 0.6% to a two-month low, heading for a fourth weekly drop. Commonwealth Bank of Australia said policy makers will trim Australia’s key interest rate to 1.25% by year-end, from an all-time low of 1.75% now.
South Africa’s rand led declines among emerging-market currencies, heading for its weakest level in six weeks after S&P Global Ratings said South Africa’s economic growth continues to disappoint.
Stocks
The S&P 500 declined 0.4%. The benchmark erased a weekly advance, falling 0.1%. It closed little changed in a whipsaw session yesterday as a late jump in oil and Monsanto’s advance offset a selloff in Apple.
"You’d think the retail numbers would prevent the market from going lower like in the last couple weeks,”'Mark Kepner, an equity strategist at Chatham, New Jersey-based Themis Trading, said by phone.
“But there are some other issues with the market right now. Every time we get up to 2 100 there’s resistance and overall the earnings aren’t great and that’s a factor as well.”
Nordstrom tumbled the most, losing 13%, after cutting its annual forecast, adding to evidence the department-store industry is in a slump. Mall operator General Growth Properties sank 2.1%. Meanwhile, Nvidia surged 13% to a record after the graphic chip maker predicted sales that may top estimates.
The Stoxx Europe 600 Index reversed to increase 0.5%. Health-care companies and retailers led gains, while Eutelsat Communications SA led media companies lower.
The MSCI Emerging Markets Index fell 1.4%, erasing gains this week and this year.
The Shanghai Composite Index slid 3% in its fourth weekly drop and longest run of declines not seen since May 2014. The Hang Seng China Enterprises Index entered a correction after extending declines from an April high to 10%. Data on new loans and aggregate financing released after the market close trailed analyst estimates. Reports on industrial production and retail sales are scheduled for Saturday.
Commodities
West Texas Intermediate crude was down 1.1% at $46.21 a barrel, after ending on Thursday at a six-month high.
Producers in Canada plan to resume operations at some oil-sands sites after wildfires took production offline, while Nigeria said militant attacks have cut output by as much as 600 000 barrels a day.
China’s steel reinforcement-bar futures plunged by a record 13% this week, after price surges over the last two months prompted authorities to clamp down on speculation in the commodities market. Iron ore futures sank to the lowest level since March 4 in Singapore.
“The steel market took a hit as blast furnace operation rates, inventories, have all been climbing,” Xu Tao, Wang Nan and Li Xiaodong, analysts at Zheshang Futures, said in a report on Friday. “The previous concerns over a shortage have abated.”
Gold in the spot market rose 0.6%, trimming this week’s loss to 1.4%.
Bonds
Short-term Treasuries fell for a fourth day, while long-term notes rose, pushing the gap between two- and 10-year note yields, known as the yield curve, close to the narrowest since 2007.
Benchmark 10-year yields fell four basis points, or 0.04 percentage point, to 1.71%. Yields on two-year notes rose one basis point to 0.76%.
