Dollar Weakens as Treasuries Gain Before GDP; Copper Retreats

Photographer: Tomohiro Ohsumi/Bloomberg

Japanese retail sales slid 13.7 percent last month, the first drop this year. Close

Japanese retail sales slid 13.7 percent last month, the first drop this year.

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Photographer: Tomohiro Ohsumi/Bloomberg

Japanese retail sales slid 13.7 percent last month, the first drop this year.

U.S. stocks gained on optimism the economy is recovering after the first contraction in three years. Treasuries fell after an earlier global bond-market rally, while copper slumped with the dollar.

The Standard & Poor’s 500 Index increased 0.5 percent to a record 1,920.03 at 4 p.m. in New York, after falling for the first time in five days yesterday. The yield on 10-year Treasuries rose 2 basis points to 2.46 percent, after earlier reaching the lowest level since June. The rate on Japan 10-year bonds slid to the lowest in a year and yields from Belgium to Austria touched record lows on speculation central banks will keep stimulating growth without igniting inflation. The Bloomberg Dollar Spot index declined 0.2 percent. Copper dropped 0.9 percent.

The economy in the U.S. contracted in the first quarter as companies added to inventories at a slower pace and curtailed investment. Government securities advanced across Asia, following a rally yesterday that drove the yield on the Bloomberg Global Developed Sovereign Bond Index to the lowest since May 2013.

“You have central banks saying they’ll do everything in their power to keep rates low,” said Cathy Roy, the chief investment officer for fixed-income at Calvert Investments in Bethesda, Maryland, which oversees more than $13 billion in bonds. “This is an environment we’re going to be in for a long time.”

European Central Bank President Mario Draghi has said policy makers are ready to ease monetary policy at their June 5 meeting if necessary. Three rounds of bond-buying from the Federal Reserve has helped bolster the U.S. economy, while China’s government has announced tax breaks and accelerated spending on railways to protect a 7.5 percent annual growth target.

GDP Report

U.S. gross domestic product fell at a 1 percent annualized rate in the first quarter, a bigger decline than projected, after a previously reported 0.1 percent gain, the Commerce Department said. The last time the economy shrank was in the same three months of 2011. The median forecast of economists surveyed by Bloomberg called for a 0.5 percent drop.

A pickup in receipts at retailers, stronger manufacturing and faster job growth indicate the first-quarter setback will prove temporary as pent-up demand is unleashed. Fed policy makers said at their April meeting that the economy has strengthened after adverse weather took its toll.

Jobless Claims

Separate data showed fewer Americans than forecast filed applications for unemployment benefits last week, a sign the labor market continues to strengthen. Contracts to purchase previously owned homes rose for a second month in April, a sign the residential real estate market is stabilizing after a weak start to the year.

“No matter what that GDP number was, the underlying backdrop is that the data is improving,” Sam Turner, a fund manager with Richmond, Virginia-based Riverfront Investment Group LLC, said in a phone interview. His firm oversees $4.6 billion. “We had two months there where small caps, higher momentum names really took it on the chin. Now they’re oversold and start to see some recovery.”

The S&P 500 has rallied 5.8 percent since a selloff in small-cap and Internet shares spread to the broader market and dragged the benchmark index to a two-month low in April. The Nasdaq 100 Index of technology stocks has jumped 8.4 percent in that period to reach the highest level since 2000. The S&P 500 has advanced 184 percent from its bear-market low in March 2009.

Tyson Deal

Hillshire Brands Co. jumped 18 percent today after Tyson Foods Inc. made a $6.8 billion offer to buy the company, trumping a competing bid from Pilgrim’s Pride Corp. Tyson added 6.1 percent for the biggest gain in the S&P 500. Biogen Idec Inc. climbed 3.6 percent after JPMorgan Chase & Co. raised its recommendation on the biotechnology company. Abercrombie & Fitch Co. jumped 5.8 percent as the clothing retailer posted a smaller-than-estimated quarterly loss.

The MSCI All-Country World Index rose 0.4 percent and climbed 1.8 percent in May for a fourth monthly increase. It closed at its highest level since November 2007, seven points below its all-time high, and the value of equities worldwide reached a record $63.9 trillion yesterday.

The Stoxx Europe 600 Index added 0.1 percent today, bringing its advance for May to 2 percent.

The MSCI AC Asia Pacific Index (MXAP) gained 0.2 percent to its highest level since November. The gauge rallied 3.5 percent this month, the most since September, after falling 0.5 percent in April.

Bond Rally

Evidence that weakening labor markets will constrain demand and inflation has caused investors to pour into government bonds. That’s confounded economist predictions for a second year of losses as signs earlier this year that U.S. economic growth is gaining traction prompted the Fed to taper its $85 billion-a-month bond-buying program.

All 26 bond markets from Hungary to Japan tracked by Bloomberg and the European Federation of Financial Analysts Societies rose this month through yesterday.

The benchmark U.S. 10-year (GDBR10) yield rose 2 basis points today to 2.46 percent, after earlier touching 2.40 percent, the lowest since June 21, according to Bloomberg Bond Trader data. The yield declined seven basis points yesterday.

The U.S. sold $29 billion of seven-year notes today at the lowest yield since October. The auction drew a yield of 2.010 percent. The bid-to-cover ratio, which gauges demand by comparing the amount of bids with the amount of debt, was 2.60, versus an average of 2.55 at the past 10 auctions. Yields at a five-year note sale yesterday dropped to the lowest since November.

Bond Yields

Australia’s 10-year yield dropped 7 basis points to an 11-month low, Japan’s slid to the least in 12 months, while European bond yields were close to the lowest since the formation of the region’s shared currency.

Austrian five-year yields slid to a record 0.455 percent, while Belgium’s 10-year rate touched 1.849 percent, also an all-time low. The yield on German 10-year bunds was two basis points higher at 1.35 percent, while that on similar-maturity U.K. gilts was down one basis point at 2.54 percent

“There really is no precedent for so many countries to have such low yields,” Jim Reid, a strategist at Deutsche Bank AG in London, wrote in a report. “These truly are remarkable times.”

The dollar fell as the GDP data increased the case for the Fed to maintain record-low borrowing costs to stimulate growth.

Dollar Slips

The dollar weakened 0.1 percent to 101.74 yen, set for a 0.5 percent decline this month. The yen was little changed at 138.40 per euro after touching 137.98, the strongest since Feb. 6. Europe’s shared currency rose 0.1 percent to $1.3604.

Australia’s dollar climbed after a report showed capital expenditure plans that Commonwealth Bank of Australia said exceeded analysts’ estimates. The Aussie increased 0.7 percent to 93.02 U.S. cents.

Russian stocks rose for a second day, with the Micex Index (INDEXCF) adding 1.5 percent, bringing it 0.6 percent higher on the week.

The Philippine Stock Exchange Index fell 1.6 percent after a report showed economic growth slowed more than estimated in the three months through March, dropping below 6 percent for the first time in nine quarter.

Abu Dhabi’s stock index rose 5.5 percent, the most since December 2009, as shares in Qatar and the United Arab Emirates gained before next week’s upgrade to emerging markets status by MSCI Inc. India’s Sensex (SENSEX) declined 1.3 percent as Infosys Ltd., the country’s second-largest software-services exporter, lost 6.5 percent after a top executive resigned.

Copper futures dropped 0.9 percent and nickel fell 2.2 percent. Gold retreated 0.2 percent to $1,257.10 and touched the lowest level since Feb. 4.

West Texas Intermediate crude rose after stockpiles at Cushing, Oklahoma, the delivery point for the contract, fell for the 16th time in 17 weeks. WTI increased 0.8 percent to $103.58 a barrel.

To contact the reporters on this story: Lu Wang in New York at lwang8@bloomberg.net; Wes Goodman in Singapore at wgoodman@bloomberg.net

To contact the editors responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net Jeff Sutherland, Michael P. Regan

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