Treasuries retreated, while the dollar rose with U.S. equities as services industry data fueled speculation American economic growth is robust enough to withstand higher interest rates. Crude oil led most commodities lower.
Yields on 10-year Treasury notes rose five basis points to 2.27 percent by 5 p.m. in New York. The Bloomberg Dollar Spot Index gained 0.2 percent to extend a four-month high, weighing on commodities from oil to gold and copper. The Standard & Poor’s 500 Index climbed 0.3 percent, halting a three-day slide.
U.S. service providers expanded in July at the fastest pace in a decade, putting the economy on track for stronger growth with Federal Reserve officials reiterating borrowing costs could be raised as soon as next month. Prospects for higher rates have bolstered the dollar, inflaming a selloff in commodities sparked by concern over demand and China’s slowdown.
“It’s all Fed today,” said John Manley, who helps oversee about $233 billion as chief equity strategist for Wells Fargo Funds Management in New York. “A slow, steady recovery is probably a good thing.”
While the week’s main focus will be government’s payrolls report due Friday, the non-manufacturing data Wednesday showed the industries that make up almost 90 percent of the U.S. economy saw a broad-based pickup accompanied by a flurry of orders, prodding more companies to beef up staffing levels.
Benchmark 10-year Treasuries fell the most in more than three weeks Tuesday after Fed Bank of Atlanta chief Dennis Lockhart said he would only endorse putting off raising rates in September should there be a significant deterioration in economic data. Fed Governor Jerome Powell said Wednesday on CNBC that he’s waiting to see how data bear out before deciding whether to support boosting borrowing costs next month.
Traders are pricing in about a 75 percent chance the Fed will increase rates at or before its December meeting, based on the assumption that the effective federal funds rate will average 0.375 percent following the increase, data compiled by Bloomberg show. The odds on a September move are 50-50.
Among stocks moving on corporate news Wednesday, H&R Block Inc. jumped to a record after receiving regulatory approval to sell its bank unit. Priceline Group Inc. climbed 5.2 percent after the second-largest U.S. online travel agent reported results that topped analysts’ estimates.
Walt Disney Co. tumbled the most in four years after revenue fell short of forecasts, dragging the Dow Jones Industrial Average down 0.1 percent. Apple Inc. arrested its slide, climbing 0.7 percent after falling for 10 of the past 11 sessions.
The dollar appreciated against a majority of its major peers as traders bet on the increased likelihood of higher rates, which would boost the appeal of dollar-denominated assets.
Emerging-market currencies deepened their slump to record lows as stocks retreated. A Bloomberg gauge of 20 developing-nation currencies slipped 0.3 percent in its fifth straight decline. The gauge has been breaching new record lows since July 23 amid angst over the potential impact of the first Fed rate increase since 2006.
“There is a gradual re-pricing on the realization that September is still firmly in play,” Grant Webster, who helps oversee $2 billion in emerging-market debt at Investec Asset Management in London, said by e-mail. “We should continue to expect this daily volatility, in both directions, on limited flows, while the market gets to grips with the likely policy moves by the Fed.”
The Bloomberg Commodity Index retreated 0.3 percent for its fourth drop in five days, falling back to near a 13-year low reached Monday. West Texas Intermediate oil slid to a four-month low, falling 1.3 percent to $45.15 a barrel as government data showed U.S. crude stockpiles declined last week as refineries processed record amounts to make fuel.
U.S. oil gained 1.3 percent on Tuesday after falling on Monday to $45.17, its lowest settlement price since March 19. Brent settled below $50 a barrel Wednesday after also spiking higher last session.
Gold futures lost 0.5 percent to end the day at $1,085.60 an ounce in New York. The metal tumbled to a five-year low in late July on the outlook for higher U.S. borrowing costs, which curb the appeal of bullion because it doesn’t pay interest or offer returns like other assets. Copper sank 1.1 percent in London, the most this month and the fourth drop in five days.
Bonds in Europe cascaded lower. Britain’s 10-year bond yields increased 10 basis points to 1.98 percent and Germany’s added 12 basis points to 0.75 percent. The Stoxx Europe 600 climbed for the sixth time in seven days and all its industry groups were up.