Treasuries Rally as Pound Drops on BOE; Stocks Mixed Before Jobs

BOE Cuts Rate to 0.25%, Adds QE to Combat Brexit
  • Bank of England cut benchmark rate to record low on Brexit
  • Asian futures signal more share gains after S&P 500 meanders

Government bonds rallied, while the pound slid against major peers, as the Bank of England cut its key lending rate for the first time in more than seven years. U.S. stocks and the dollar traded in tight ranges as investors awaited Friday’s jobs report.

Sovereign debt from the U.K. to Germany advanced with Treasuries after the BOE delivered what Governor Mark Carney called “exceptional” stimulus to preempt the effects of Brexit. Sterling fell the most in four weeks as credit markets strengthened. The S&P 500 Index churned at a level less than 1 percent below its all-time high, while the dollar continued to trade within its narrowest band in more than a week. American crude oil rose past $41 a barrel, extending its rebound from near four-month lows.

The BOE cut growth forecasts for the U.K. by the most ever as policy makers unveiled a stimulus package aimed at containing the fallout from the British vote to leave the European Union. While the pound retreated and bonds jumped, other assets showed little reaction to the widely expected move, with investors switching their focus to next session’s update on U.S. nonfarm payrolls. Economists expect the report will show continued improvement in the labor market, a key factor for the Federal Reserve, which is mulling whether to stick to its plan to continue tightening policy in 2016.

“Tomorrow’s employment number is the catalyst for the market - that’s what is going to rule the pricing trends over the next few weeks,” said Jim Davis, regional investment manager at the Private Client Reserve of US Bank, which oversees $128 billion. “We really need to see some economic growth in order to have more assurance that we’re going to have growing earnings in the second half of the year.”

Stocks

The S&P 500 rose less than one point to 2,164.25 as of 4 p.m. in New York, while Nasdaq 100 Index added 0.2 percent.

U.S. equities snapped a two-day retreat Wednesday as crude’s rebound underpinned gains in energy producers, while corporate earnings buoyed financial companies. The index has hovered near a record over the past few weeks, and is trading at 18.4 times the projected earnings of its members, near its most expensive level in more than a decade.

Investors are looking for clear signs of economic progress after data last week showed expansion was slower than anticipated in the second quarter, after a reading on jobless claims came in higher than forecast.

The Stoxx 600 advanced 0.7 percent in London, after falling earlier in the week. A gauge of lenders jumped 1.3 percent, the best performance among the benchmark index’s 19 industry groups, while the U.K.’s FTSE 100 Index soared 1.3 percent.

The MSCI Emerging Markets Index climbed 1.1 percent, after sliding 1.6 percent over the previous two days. Benchmarks in Russia, Dubai and the Philippines gained at least 0.8 percent. The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong rose 0.3 percent, rebounding from the biggest drop in four weeks.

Futures on Asian indexes signaled more gains ahead, with contracts on gauges in Japan, Australia, South Korea and Hong Kong up at least 0.1 percent in most recent trading.

Currencies

The pound weakened 1.6 percent to $1.3107, its steepest decline since July 6 on an intraday basis, and lost 1.5 percent to the euro. The BOE also increased its asset-purchase target Thursday for the first time in four years, lifting it by 60 billion pounds to 435 billion pounds.

The Bloomberg Dollar Spot Index, a gauge of the greenback against 10 major peers, was up 0.1 percent after rising 0.3 percent on Wednesday, when emerging-market currencies led declines.

Chicago Federal Reserve President Charles Evans told reporters last session that a U.S. rate hike “could be appropriate this year.” Odds on the Fed boosting benchmark borrowing costs in 2016 have dropped to 37 percent, with last week’s weaker-than-expected report on U.S. gross domestic product damping prospects for tightening.

The yen was little changed at 101.22 per dollar, following on from Wednesday’s 0.4 percent drop. Japan’s currency has gained about 0.9 percent this week, as traders weigh the BOJ’s decision last Friday to only bolster purchases of exchange-traded funds, as well as a fiscal package flagged Tuesday by Prime Minister Shinzo Abe.

South Africa’s rand jumped 1.5 percent, the most among major currencies, as early results in local elections showed the ruling party trailed the main opposition group in several major cities, while leading the overall vote.

Bonds

The BOE decision propelled German 10-year bonds higher as yields on U.K. gilts slipped to a record low. Italian securities ended their longest run of declines in more than three months.

Treasuries rose, with yields on notes due in a decade down four basis points, or 0.04 percentage point, to 1.50 percent.

Ten-year rates had jumped at the start of this week, as the record-setting rally in global bonds appeared to falter. Yields on German 10-year bunds lost six basis points to minus 0.10 percent. Yields on gilts due in a decade fell as much as 17 basis points to a record-low 0.634 percent, while those on 30-year debt slid as low as 1.468 percent.

Commodities

West Texas Intermediate crude rallied 2.7 percent to settle at $41.93 a barrel. Wednesday’s 3.3 percent rebound came after U.S. government data showed gasoline stockpiles fell by 3.26 million barrels last week, the most since April. Brent crude dropped 0.6 percent to $42.83 a barrel Thursday as speculation mounted WTI’s tumble into a bear market earlier this week would be short-lived.

“We’re seeing rebalancing,” Scott Darling, regional head of oil and gas at JPMorgan Chase & Co., said in a Bloomberg TV interview. “We think in the near-term, oil will be under pressure because demand is moderating.”

Gold futures erased losses, climbing 0.2 percent to $1,367.40 an ounce, after declining 0.6 percent on Wednesday. Last session’s retreat halted the precious metal’s longest rally in a month. 

Copper posted the biggest loss in a week, falling with most industrial metals amid mounting concern that global economic stimulus won’t be enough to push up demand.

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