Investors in U.S. stocks and bonds refocused attention on the economy and the outlook for higher interest rates, as the financial turmoil triggered by China’s currency devaluation dissipated.
American equities climbed while Treasuries fluctuated with the dollar amid factory data that added to signs of a strengthening U.S. economy that may prompt an increase in the Federal Reserve’s target interest rate as soon as next month. The effects of China’s devaluation lingered in emerging markets, where currencies from Malaysia to Russia weakened.
“Economic data has been a bit better than expected and people are not worrying as much about China,” said Paul Zemsky, head of multi-asset strategies at Voya Investment Management LLC. “Clearly the industrial production and retail sales data were both better than expected. Those are helping, and the fact that the yuan has stabilized and hasn’t come crashing down has given a bid under the market.”
The Standard & Poor’s 500 Index added 0.4 percent at 4 p.m. in New York, capping a 0.7 percent weekly gain. The yield on 10-year Treasury notes added one basis point to 2.20 percent after data showed a rise in wholesale prices and a pickup in industrial production. Oil pared its seventh weekly decline amid signs a global glut will be prolonged, while gold capped its best weekly rally since June.
China’s yuan halted a three-day slide after the central bank raised its reference rate for the first time since Tuesday’s devaluation and said it will intervene to prevent excessive swings. The onshore spot rate was little changed at 6.3912 per dollar, after falling almost 3 percent this week.
In the U.S., factory production rose more than economists forecast in July on record automobile assembly, indicating American manufacturing is regaining its footing after a slowdown. Wholesale prices in the U.S. climbed at a slower pace in July.
The bond market is saying China’s decision to devalue the yuan won’t stop the Federal Reserve from raising interest rates. The probability of a rate increase in September is 52 percent, up from 40 percent Tuesday, according to futures trading data compiled by Bloomberg.
German government bonds have come full circle since China roiled markets by devaluing the yuan. Benchmark 10-year bund yields dropped nine basis points in two days after Chinese officials cut their currency’s reference rate, only to crawl higher as they vowed to intervene and stop excessive fluctuations.
Calm returned to European equity markets after days of wild swings this week. The region’s shares were little changed, with the Stoxx Europe 600 Index down 0.1 percent to 386.24 at the close of trading. After three days of moves of more than 1 percent, the gauge had a relatively quiet day.
Malaysia has borne the brunt of a selloff in emerging markets this week, with the ringgit plunging as much as 2.8 percent to the weakest since August 1998. Concern has grown the nation is running out of ammunition to defend its currency as oil declines and a political scandal involving Prime Minister Najib Razak grows.
West Texas Intermediate oil climbed to $42.58 a barrel Friday, though crude fell for a seventh week in a row, capping the longest slump since January amid sings the global glut that’s driven prices to six-year lows will be prolonged.
Gold capped the biggest weekly gain in two months as the metal’s haven appeal finally started attracting investors again. Futures for December delivery slid 0.3 percent to settle at $1,112.70 an ounce in New York. Prices climbed 1.7 percent this week, the most since mid-June.