Stocks Drop, Treasuries, Yen Rally as U.S. GDP Growth Slows
The MSCI Asia Pacific Index sank 0.5 percent to 119.18 as of 9:51 a.m. in Tokyo. Four stocks declined for each one that rose on the index, which climbed 1.5 percent this week. Photographer: Tomohiro Ohsumi/Bloomberg
July 30 (Bloomberg) -- Guy Lebas, chief fixed-income strategist at Janney Montgomery Scott LLC, discusses the U.S. second-quarter gross domestic product figures released by the Commerce Department today and the outlook for the economy. Growth in the U.S. slowed to a 2.4 percent annual rate in the second quarter, less than forecast, reflecting a larger trade deficit and an easing in consumer spending. Lebas speaks with Carol Massar on Bloomberg Television’s “In the Loop With Betty Liu.” (Source: Bloomberg)
July 30 (Bloomberg) -- Christina Romer, chairman of the White House Council of Economic Advisers, discusses second-quarter gross domestic product, released today, and the outlook for the U.S. economy. Romer speaks with Carol Massar on Bloomberg Television's "In the Loop." (Source: Bloomberg)
July 30 (Bloomberg) -- Gavin Wendt, a senior analyst with MineLife Co. Ltd., talks with Bloomberg's Susan Li from Sydney about Aluminum Corp. of China Ltd.'s agreement to pay $1.35 billion for a stake in Rio Tinto Group's Simandou iron ore project in Guinea. Chalco, as the Beijing-based company is known, will acquire a 44.65 percent stake by funding development over the next two to three years, the companies said in a joint statement. (Source: Bloomberg)
Treasuries rose, sending the two- year yield to a record low, while the dollar slumped versus the yen as weaker-than-estimated U.S. economic growth cast doubt on the strength of the recovery. The Standard & Poor’s 500 Index still capped its best monthly rally in a year.
The two-year note’s yield slumped 3 basis points to 0.5461 percent before paring losses and the dollar fell as much as 1 percent to 85.95 yen, the weakest since November. The S&P 500 rose less than 0.1 percent to 1,101.6 at the 4 p.m. close in New York, reversing a loss of 1.2 percent in the first half hour after gauges of business activity and consumer confidence topped estimates. Oil rose 0.7 percent after an earlier 2 percent tumble sent it below its average price from the past 100 days.
The S&P 500 fell 0.1 percent this week, trimming its July rally to 6.9 percent, as reports portraying a slowdown in the U.S. expansion tempered optimism from better-than-estimated earnings. Treasury notes capped a fourth monthly gain amid concern the world’s largest economy is struggling to recover from the worst recession since World War II.
“Today’s numbers confirm that the economic recovery is losing momentum due to structural headwinds,” Mohamed A. El- Erian, the chief executive officer of Pacific Investment Management Co., said in an email. Newport Beach, California- based Pimco runs the world’s biggest bond fund.
GDP, Consumer Spending
The 2.4 percent growth in U.S. gross domestic product reported by the government today compared with 2.6 percent forecast in a Bloomberg survey of 81 economists. Consumer spending, which accounts for about 70 percent of the economy, increased at a 1.6 percent annual rate, less than the 2.4 percent pace predicted in a Bloomberg survey.
Other data bolstered optimism in the economy’s performance this month, triggering the rebound from an early tumble in stocks. The Institute for Supply Management-Chicago Inc. said today its business barometer rose to 62.3 this month, exceeding the median forecast of economists surveyed by Bloomberg News. Figures greater than 50 signal expansion. The Thomson Reuters/University of Michigan final index of consumer sentiment declined to 67.8 in July, compared with the median estimate of 67.
America’s financial system remains fragile and banks subjected to additional economic stress might need as much as $76 billion in capital, according to International Monetary Fund stress tests. The findings, released in a report today, suggest that while the nation’s banking system is stable, it remains vulnerable.
Treasuries, Yen
The 10-year Treasury yield dropped 8 basis points to 2.91 percent. The yen strengthened against 10 of 16 of its most- traded counterparts, paring gains against the dollar to 0.4 percent by the end of the day.
A benchmark indicator of corporate credit risk in the U.S. climbed, trimming a weekly retreat. Credit-default swaps on the Markit CDX North America Investment Grade Index, which typically rises as investor confidence deteriorates, increased 0.3 basis points to a mid-price of 104.5 basis points, according to index administrator Markit Group Ltd.
The Reuters/Jefferies CRB Index of commodities rallied 1.5 percent to 274.35, its highest level in almost three months.
Oil capped its biggest monthly gain since March, rising 0.8 percent to $78.95 a barrel today and surging 4.4 percent in July. Today’s rally came after an early slide took crude below its average price over the past 100 days, a level watched by traders whose decisions are influenced by chart patterns.
‘Sold Off Too Hard’
“Prices sold off too hard and dropped below the 100-day moving average of $78.25,” said Hamza Khan, an analyst at the Schork Group in Villanova, Pennsylvania. “Traders are just not willing to give that point up.”
Spanish 10-year bonds fell, sending the yield 3 basis points higher to 4.21 percent, after Moody’s Investors Service said the nation will probably lose its top Aaa credit rating.
The Stoxx Europe 600 Index declined 0.4 percent, capping a 0.2 percent weekly loss. The measure rallied 4.9 percent in July, its biggest advance since March. Lafarge SA, the world’s largest cement maker, dropped 3.9 percent today after cutting its demand outlook. HeidelbergCement AG retreated 3.4 percent as earnings trailed estimates.
The MSCI Emerging Markets Index of equities in 21 developing nations slipped 0.2 percent, halting an eight-day rally.
Emerging-market bonds capped their biggest monthly rally since September, cutting yields to a record low, as accelerating economic growth and Argentina’s debt restructuring spur confidence.
Emerging Market Bonds
Developing nation bonds rallied 4.3 percent in July, reducing the average yield to 5.89 percent, the lowest since Bloomberg began compiling data from JPMorgan Chase & Co.’s EMBI+ Index in 1998.
Investors are turning to economies the International Monetary Fund said this month will expand three times faster than industrialized nations, with less than half the level of government debt. Indonesia’s bonds jumped 6.1 percent as the finance ministry predicted 6 percent second-half growth, up from 5.8 percent in the first half. Argentine debt rose 13.8 percent as President Cristina Fernandez de Kirchner’s $12.9 billion restructuring sparked a credit-rating upgrade.
To contact the reporters on this story: Rita Nazareth in New York at rnazareth@bloomberg.net; Stephen Kirkland in London at skirkland@bloomberg.net
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