Treasuries climbed with gold and U.S. stocks slumped from an all-time high as evidence mounted that Russia has sent troops to fight in Ukraine.
The yield on 30-year Treasuries dropped 3 basis points to 3.08 percent at 4 p.m. in New York, reaching a 15-month low. The Standard & Poor’s 500 Index fell 0.2 percent to 1,996.74 after closing above 2,000 (SPX) for two straight days. The Nasdaq 100 Index lost 0.1 percent, snapping an 11-day winning streak. The Stoxx Europe 600 Index retreated 0.7 percent. Russia’s Micex Index fell 1.7 percent and the ruble weakened against every major currency. Gold rose 0.5 percent. A gauge of overnight borrowing costs in euros fell to a negative level for the first time.
Ukrainian President Petro Poroshenko pledged to step up the country’s defenses against what he earlier called a “de facto” Russian incursion after separatists gained ground in intensified fighting. The biggest gain in U.S. business investment in over two years helped the world’s largest economy expand more than previously forecast in the second quarter, raising expectations for the rest of 2014. Weaker European data from economic confidence to consumer prices backed Mario Draghi’s warning that more stimulus may be needed.
“When you have geopolitical events, there is a fear that it’s not going to remain contained,” Matthew Kaufler, a portfolio manager at Federated Investors Inc. in Rochester, New York, said by phone. His firm oversees about $350 billion. “That might cause investors to reassess their risk appetites.”
Poroshenko canceled a state visit to Turkey to coordinate Ukraine’s military response to the “sharp deterioration” of events in rebel-held territory, he said on his website today. Russian President Vladimir Putin discussed in a phone call with Italian Prime Minister Matteo Renzi the need to halt the bloodshed in Ukraine, Putin’s office said in e-mailed statement. France and Germany threatened tougher sanctions against Russia.
The five months of unrest have sparked the worst standoff between Russia and its former Cold War foes in two decades and unleashed sanctions on both sides. Violence surged a day after Putin and Poroshenko met in Minsk, Belarus. Putin hailed the talks as a step toward peace, though he said cease-fire terms weren’t discussed because Russia isn’t a party to the conflict.
U.S. equity investors have largely shrugged off geopolitical crisis from Ukraine to Gaza and Iraq this year, as the the S&P 500 climbed above 2,000 for the first time this week. The index is poised for a 3.4 percent gain in August, the best monthly showing since February. The benchmark gauge has rallied as much as 4.7 percent from a low on Aug. 7 as speculation increased that the Federal Reserve will keep interest rates low for an extended period while the economy improves.
“These geopolitical events tend to be transitory, where the market may drop over the short-term but then tends to recover pretty quickly,” Bob Landry, executive director and portfolio manager at San Antonio-based USAA Investment Management Co., said via phone. He helps manage $22.3 billion.
The economy in the U.S. expanded more than previously forecast in the second quarter, propelled by the biggest gain in business investment in more than two years that bodes well for the rest of 2014.
Gross domestic product, the value of all goods and services produced, rose at a 4.2 percent annualized rate, up from an initial estimate of 4 percent and following a first-quarter contraction, Commerce Department figures showed.
Other reports showed contracts to purchase previously owned homes rose more than forecast in July, a sign of renewed momentum in residential real estate. The number of Americans filing for unemployment benefits was little changed last week near the lowest level in seven year.
The U.S. stock market is seeing the slowest trading in at least six years as American investors leave for summer vacation and volatility slumps. Volume has been below 5 billion shares in each of the past eight days, the longest streak in data compiled by Bloomberg going back to 2008.
Retailers slid today, as Williams-Sonoma Inc. tumbled 12 percent after its earnings forecast missed analysts’ estimates. Abercrombie & Fitch Co. declined 4.8 percent as second-quarter comparable sales fell more than analysts had projected. Guess? Inc. plunged 8.8 percent after the retailer lowered its annual earnings forecast.
European equities retreated the most since Aug. 7 after the Stoxx 600 reached its highest valuation in a month yesterday. The index’s constituents traded at 15.5 times estimated earnings yesterday, higher than their five-year average price-earnings ratio of 12.6, according to data compiled by Bloomberg.
Mining companies and carmakers led losses in Europe. BHP Billiton Ltd. and Rio Tinto Group, the world’s two largest commodity producers, dropped more than 2.8 percent.
Europe’s bond yields tumbled to records yesterday. ECB President Draghi said in Jackson Hole, Wyoming, last week that policy makers will use “all the available instruments needed to ensure price stability” and are “ready to adjust our policy stance further.”
Reports today showed euro-area economic confidence fell more than forecast, Spanish consumer prices dropped the most in five years and German unemployment unexpectedly rose.
Germany’s 10-year yields added to declines today, touching an all-time low of 0.866 percent. The yield on similar-maturity French bonds slid to 1.223 percent.
A gauge of overnight borrowing costs in euros fell to a negative level for the first time as the ECB’s penalty charge on deposits damped money-market rates and yields in the region tumbled. Borrowing costs are tumbling after the ECB lowered its deposit rate to minus 0.1 percent on June 5 in an attempt to boost the flow of cash into the economy and stave off the threat of deflation.
U.S. 30-year yields dropped 3 basis points to 3.08 percent, the lowest level since May 2013. The benchmark 10-year note yield fell 2 basis points to 2.34 percent and reached 2.32 percent, almost the least since June 2013. The U.S. sold $29 billion of seven-year notes at the lowest yield since May. As yields in Europe plunge, investors are snapping up government securities from the U.S. to Australia in search of higher interest payments.
The MSCI Emerging Markets Index slipped from a three-year high as Russian stocks fell. The Micex had rallied 5 percent in August before trading opened today. MSCI’s benchmark for developing-nation equities declined for the first time in five days, losing 0.5 percent.
The ruble weakened 1.6 percent against the dollar. Ukraine’s 2017 Eurobond fell for a seventh day. That sent the yield 127 basis points higher to 11.99 percent.
Qatari stocks declined 3.1 percent, the most since 2011, as some investors capitalized on a rally before MSCI Inc. adjusts the country’s weight on its Emerging Market Index.
The yen gained versus most of its major counterparts as rising tensions between Russia and Ukraine prompted demand for haven assets. The Japanese currency rose 0.2 percent to 103.69 per dollar. The yen added 0.3 percent to 136.69 per euro. The shared currency lost 0.1 percent to $1.3183.
Gold advanced 0.5 percent to $1,290.40 an ounce as the tension in Ukraine sent investors seeking safety.
West Texas Intermediate crude climbed 0.7 percent to $94.55 a barrel, gaining for a third straight day, as the U.S. GDP report boosted expectations for strong oil demand.