Treasuries rallied, sending 30-year bond yields to a 10-month low, as mixed economic signals bolstered haven demand before a jobs report tomorrow. U.S. stocks were little changed after a three-day rally.
Thirty-year Treasury yields dropped five basis points to 3.41 percent at 4 p.m. in New York. The yield on 10-year notes slid three basis points to 2.61. The Standard & Poor’s 500 Index declined less than one point, while the Nasdaq 100 Index advanced as Internet shares rallied. The Dow Jones Industrial Average fell 0.1 percent from a record. Aluminum sank to lead industrial metals lower on concern that demand from China will ebb.
A gauge of U.S. manufacturing rose in April, jobless claims climbed to a nine-week high last week and household purchases, which account for about 70 percent of the economy, added the most since August 2009. China’s factory output increased to 50.4 in April, less than the 50.5 level predicted in a Bloomberg survey of economists. Markets from China to Germany and France were closed for holidays.
“People had lofty expectations that things were getting better, not just staying on track,” said George Goncalves, head of interest-rate strategy at Nomura Holdings Inc., one of 22 primary dealers that trade with the Federal Reserve. “That’s being rethought. The market’s a little bit nervous.”
Government securities rallied as the inflation component of the April manufacturing survey was lower than estimated, leading traders to unwind hedges against higher interest rates. Thirty-year yields touched 3.40 percent today, the lowest level since June 20.
The S&P 500 gained 0.6 percent last month for a third consecutive monthly increase. It closed today within eight points of its record reached April 2.
The Dow Jones Internet Composite Index increased 1.4 for its third straight day of gains. Netflix Inc. added 4.5 percent while Pandora Media Inc. climbed 5.5 percent.
Avon Products Inc. (AVP) tumbled 10 percent to lead losses in the S&P 500 after earnings trailed analysts’ estimates by almost half. T-Mobile US Inc. rallied 8.2 percent after adding 1.3 million new monthly subscribers last quarter. Yelp Inc. gained 9.8 percent after raising its forecast for 2014 revenue.
“The market has had a nice little run here, and you’ve got a number coming tomorrow, so there may be some hesitation,” Bruce Bittles, chief investment strategist at Milwaukee-based RW Baird & Co., which oversees $110 billion, said in a phone interview. “As long as the Fed is going to remain friendly to the markets and rates are not going to go up, that’s going to be bullish for stocks.”
The Federal Reserve yesterday said it would continue to trim the pace of bond purchases as the economy gains momentum. The central bank cut its monthly asset purchases to $45 billion and said further reductions in “measured steps” are likely.
Fed Chair Janet Yellen is winding down record stimulus as the world’s largest economy shows signs of rebounding from a first-quarter standstill.
Data today showed applications for U.S. unemployment benefits unexpectedly climbed to a nine-week high last week, while consumer spending surged in March by the most in almost five years as warmer weather brought shoppers back to auto-dealer lots and malls.
A Labor Department report tomorrow may show employers added 215,000 workers in April, the most since November, according to economists’ projections. A private payrolls report yesterday showed companies added more workers last month than at any time in the previous five.
Investors have added almost $10 billion to U.S. equity exchange-traded funds this year, data compiled by Bloomberg show. Energy stocks absorbed the most money among industry ETFs yesterday, taking in $460 million, more than twice that of any other sector. That pared the group’s five-day net outflow to $259 million. Technology ETFs saw inflows of $185 million.
“Around the election or soon after, the market bubble will burst, as bubbles always do, and will revert to its trend value, around half of its peak or worse,” Grantham, 75, wrote in a quarterly letter released today.
Grantham said the S&P 500 Index (SPX), currently around 1,880, is already 65 percent overvalued. Reaching the 2,250 is significant, he argues.
The dollar strengthened against the yen before the jobs report. The greenback rose 0.1 percent to 102.30 yen, after falling 0.4 percent yesterday. The euro was little changed at $1.3865.
The S&P GSCI index of 24 commodities dropped 0.6 percent as cocoa, wheat and soybeans fell at least 2 percent.
West Texas Intermediate oil dropped 0.3 percent to a five-week low, settling at $99.42 a barrel in New York.
Gold capped the longest slump in a month, as signs of a recovery in the U.S. economy curbed demand for the precious metal as an alternative asset. Futures for June delivery fell 1 percent to settle at $1,283.40 for a fourth day of losses. Silver slid to the lowest since July.
Aluminum dropped 0.8 percent to lead industrial metals lower as zinc, lead and tin declined in London on concern that demand will ebb from China, the biggest buyer of industrial metals and energy. Nickel fell for the third time in four days.
The manufacturing purchasing managers’ index for Asia’s largest economy rose from a level of 50.3 in March. Readings above 50 signal expansion. A similar gauge from HSBC Holdings Plc and Markit Economics Ltd. released last week was at 48.3, from 48 previously, indicating China’s economy continued to contract in April. A final reading on the index is due May 5.
China’s economy is “a slow-moving ship at the moment, but the sentiment is turning progressively negative,” Chris Weston, chief market strategist at IG Ltd. in Melbourne, said by phone. “We haven’t had positive news for quite some time.”
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