Treasuries gained on escalating tensions in Ukraine, while U.S. stocks erased declines as oil prices jumped. The yen rose amid demand for haven assets.
The yield on 10-year Treasuries slid 6 basis points to 2.34 percent. The MSCI All-Country World Index was little changed at 4 p.m. in New York, reversing an earlier rally of 0.5 percent while paring a drop of as much as 0.4 percent. The Standard & Poor’s 500 Index fell less than 0.1 percent after dropping as much as 0.7 percent, while the Nasdaq Composite Index increased 0.3 percent. Gold futures declined 0.7 percent, paring an earlier drop of 1.7 percent. Oil rose and the yen erased losses against the dollar.
Ukraine said its troops attacked and partially destroyed a column of armed vehicles that had crossed the border from Russian territory, while Russia said it was concerned about an attack on another convoy carrying aid.
“Investors are trying to weed through what exactly is going on in Ukraine,” Stephen Carl, principal and head equity trader at New York-based Williams Capital Group LP, said in a phone interview. “We have a geopolitical situation that needs to be addressed, and that’s overshadowing everything else in the market.”
The S&P 500 yesterday climbed 0.4 percent to reach its highest level since July 30. It rose 1.2 percent this week. President Vladimir Putin said yesterday that Russia shouldn’t isolate itself from the outside world, as he pledged to work to halt the conflict.
The government in Kiev has for months said that separatist rebels in its easternmost regions are receiving support from Russia, which backs them with artillery fire. Russia has repeatedly denied any involvement in the Ukrainian unrest.
The Chicago Board Options Exchange Volatility Index, which usually moves in the opposite direction to the S&P 500, jumped 5.9 percent to 13.15, halting five days of declines. The gauge lost 17 percent this week in its biggest drop since April.
Gold fell 0.7 percent to $1,306.50 an ounce for the largest decline of the month. Oil futures rallied 1.9 percent, the most since July 17. U.K. natural gas climbed for a third day, soaring 4.1 percent. Europe gets about a third of its natural gas from Russia, half of it through Ukraine.
The ruble dropped 0.4 percent, while Russia’s Micex Index gained 0.7 percent.
The yen rose 0.1 percent to 102.34 per dollar, after falling as much as 0.3 percent earlier. Japan’s currency was down 0.1 percent at 137.09 per euro. The euro rose 0.2 percent to $1.3395 after sliding to $1.3333 on Aug. 6, the lowest since Nov. 8.
The S&P 500 rose as much as 0.5 percent in morning trading as signs the economic recovery is slowing stoked bets that central banks will leave interest rates near record lows for longer. Global growth has struggled to gain momentum as the U.S. recovery plods on, Europe grapples with geopolitical tensions and China contends with a property slump and investment-spending slowdown.
Reports today showed an uneven recovery. U.S. factory production increased in July at the fastest in five months as capital spending climbed and motor vehicle demand surged. The Thomson Reuters/University of Michigan preliminary index of sentiment dropped to 79.2 in August, the lowest since November, from 81.8 in July, according to data issued today. Wholesale prices in the U.S. rose at a slower pace as fuel costs dropped by the most in eight months.
Limited price pressures give the Fed room to maintain an accommodative position as they scale back their monthly bond purchases, which are on pace to end in October. Recent economic strength had created concern that the central bank may be forced to act on rates sooner than anticipated. Federal Reserve Chair Janet Yellen has said officials will keep the benchmark rate low for a “considerable time” after the bond buying ends.
Financial markets are probably mistaken if they’re counting on Fed interest-rate increases to occur more slowly than policy makers forecast, St. Louis Fed President James Bullard said. Futures contracts on the federal funds rate show investors expect the benchmark to rise to 0.63 percent at the end of 2015, while the Federal Open Market Committee’s median projection for the end of next year is 1.13 percent.
“The market is trading too dovishly compared to the committee,” Bullard said today in an interview on SiriusXM satellite radio. “I think that’s probably a mistake,” he said, adding that market participants “should come closer to where the median of the committee is.”
Government bonds across the euro area advanced for the week amid faltering growth and bets inflation will remain subdued. Rates have set new euro-era lows from Ireland to Austria, while Germany’s 10-year yield slid below 1 percent for the first time yesterday.
ECB President Mario Draghi committed last week to build on the unprecedented stimulus unveiled in June if the outlook deteriorates.
The yield on Italy’s 10-year debt dropped 7 basis points to 2.58 percent today, while the rate on Spain’s bonds fell 9 basis points to 2.40 percent.
“We might have to rely on more European Central Bank policy,” said Thomas Thygesen, head of cross-asset strategy at Skandinaviska Enskilda Banken AB in Copenhagen. “Investors are trying to figure out what kind of correction they witnessed. It could be a risk-sentiment correction where there is no economic fallout from the crisis in Ukraine, or we could have a weaker European economy that is less able to withstand even a modest hit. Next week’s August data is going to be crucial.”
Mining companies gained on the Stoxx 600 as BHP Billiton BHP Billiton Ltd. jumped 1.2 percent after saying it will discuss spinning off parts of its business. The world’s biggest commodity producer said it will focus on its iron ore, copper, coal and petroleum businesses. The board meets next week to debate a demerger of some of its other assets. Rio Tinto Group, the world’s second-largest mining stock, climbed 0.9 percent.
In the U.S., Monster Beverage Corp. soared 30 percent after Coca-Cola Co. agreed to buy a stake in the company. Applied Materials Inc. jumped 6.3 percent after forecasting sales that may top analysts’ estimates. Nordstrom Inc. sank 5.2 percent after reporting sales that missed analysts’ estimates.
The MSCI All-Country index trimmed its weekly gain to 1.6 percent, its best performance since April. The gauge is down 2.3 percent from its record reached July 3.
The U.S. posted a record cross-border investment outflow in June as China and Japan, the two biggest foreign holders of Treasuries, reduced their holdings of U.S. government debt.
The total net outflow of long-term U.S. securities and short-term funds such as bank transfers was $153.5 billion, after an inflow of $33.1 billion the previous month, the Treasury Department said in a report today. The June figure, and $40.8 billion in net selling of Treasury bonds and notes by private investors in June, were the largest on record, the Treasury said.
The MSCI Emerging Markets Index added 0.3 percent, increasing for a fifth day and bringing this week’s advance to 2.9 percent, the biggest rally since March.
Hong Kong’s Hang Seng Index reached its highest level since 2010. The Hang Seng China Enterprises Index of mainland shares traded in Hong Kong rose 0.3 percent. The Shanghai Composite Index increased 0.9 percent, completing its fifth week of gains, the longest winning streak since May 2013.
China may adopt targeted interest-rate cuts for shanty-town redevelopment, the agriculture sector and small companies, according to a front-page commentary today in the China Securities Journal.