(Bloomberg) -- Janet Yellen halted the U.S. equity rally, boosted the dollar and sent two-year Treasury yields to the highest since 2011 after she said the economy’s performing well and December remains a “live possibility” for higher interest rates.
The Standard & Poor’s 500 Index fell from a three-month high, the dollar strengthened against emerging-market currencies and two-year Treasury yields topped 0.80 percent after the Fed chair’s comments pushed the odds for a December rate increase to 58 percent. Oil retreated as inventories rose.
“We’ve come back a long way since the end of September, but we’re not going to go straight back to a record,” said Thomas Garcia, head of equity trading at Thornburg Investment Management Inc. in Santa Fe, New Mexico. “Investors are waiting to get more data points this week to assess a potential rate hike in December. Technicals may also be playing a role in keeping us from going much higher today.”
Yellen’s comments came during Congressional testimony and followed a private payrolls report that signaled steady improvement in the U.S. labor market. She said an improving economy has set the stage for a December interest-rate increase if economic reports continue to assure policy makers that inflation will accelerate over time. October jobs data is due Friday, one of two hiring reports before the Fed next meets.
The S&P 500 fell 0.5 percent at 1:15 p.m. in New York, dropping the gauge from its highest since July. The index has recovered from an August selloff sparked by China’s currency devaluation, and is poised to retake its May record. Energy and commodity producers, two of the biggest sufferers in the third- quarter selloff, have paced the recovery.
Tesla Motors Inc. surged after repeating a 2015 delivery forecast while saying it’s on track to reveal the Model 3 in March. Pfizer Inc. merger target Allergan Plc increased 1.4 percent after its results topped analysts’ estimates. Groupon Inc. plunged after forecasting fourth-quarter revenue that was below analysts’ targets.
In Europe, energy and basic-resources shares led the Stoxx Europe 600 Index to a 0.5 percent advance. Glencore Plc rallied 5.4 percent after saying profit from trading commodities rebounded. Carmakers slid, dragged lower by a 8.5 percent slide in Volkswagen AG. The company said it found faulty emissions readings for the first time in gasoline-powered vehicles, widening a scandal.
The dollar rose to its highest in three months against the euro as the ADP jobs report showed hiring rose more than forecast, boosting the case for higher rates as soon as December.
The Bloomberg Dollar Spot Index, which tracks the U.S. currency versus 10 of its peers, added 0.7 percent. The greenback climbed 1 percent to $1.08554 per euro and gained 0.4 percent to 121.56 yen.
“It’s all about the interest rate outlook,” said Stuart Bennett, London-based head of Group-of-10 currency strategy at Banco Santander SA. “The market seems willing to sell the euro come what may. If the U.S. data is a little bit soft or European data isn’t too bad it doesn’t make any difference. Everything is irrelevant aside from that interest rate story.”
The MSCI Emerging Markets Index rose 0.6 percent to a three-month high as benchmark gauges in China, Taiwan and Indonesia climbed at least 1.7 percent. A Bloomberg index of developing nation currencies slid 0.7 percent as the dollar rallied.
The Shanghai Composite Index jumped 4.3 percent, the biggest advance since Sept. 16. Annual growth should be no less than 6.5 percent in the next five years to realize the goal to double 2010 gross domestic product and per capita income by 2020, President Xi Jinping said late Tuesday, according to the official Xinhua News Agency.
Ten-year Treasuries fell as yields rose to a six-week high, while two-year rates jumped to the highest since 2011. Traders see a 52 percent chance the central bank will raise its benchmark rate at its next meeting, according to futures data compiled by Bloomberg.
U.S. 10-year note yields added two basis points to 2.23 percent, while two-year rates rose five basis points to 0.81 percent.
European bonds climbed after Draghi’s comments on Tuesday. Yields on 10-year German bunds fell two basis point to 0.56 percent, while that on similar-maturity Italian debt slid five basis points to 1.61 percent.
The Bloomberg Commodity Index dropped 1.3 percent as crude oil tumbled after a government report showed U.S. inventories rose for a sixth week. West Texas Intermediate slipped 3.4 percent to $46.27.
Gold held near a one-month low as investors added to bets the Fed will raise rates this year. Copper advanced to the highest in almost a week as industrial metals climbed after Glencore said it will cut more production at its mines through 2017.