Bonds Fall, Stocks Advance Amid Jobs Data as Euro WeakensRichard Frost and Stephen Kirkland
Treasuries fell, with 10-year yields reaching a two-year high, while stocks rose as data on service industries and jobs added to signs the economy is gaining momentum. The euro slid as European Central Bank President Mario Draghi said rates will remain low.
U.S. 10-year note yields jumped nine basis points to 2.99 percent at 4 p.m. in New York, reaching the highest since July 2011. German 10-year yields rose to the highest in 17 months, climbing above 2 percent, and rates on U.K. gilts of similar maturity topped 3 percent. The Standard & Poor’s 500 Index climbed 0.1 percent and the Stoxx Europe 600 Index added 0.7 percent. The euro weakened 0.7 percent to $1.3119. Oil advanced after a Senate committee approved military strikes on Syria and U.S. inventories dropped in Cushing, Oklahoma.
A private report said U.S. service industries expanded at the fastest pace in eight years, while Labor Department data showed the number of workers claiming jobless benefits slid more than economists predicted. The reports come before the monthly payrolls data tomorrow and the Fed’s next meeting from Sept. 17-18. Draghi said the ECB’s monetary policy will remain accommodative for “as long as necessary” and the economy was too weak to exclude rate-cut discussions after the ECB, Bank of England and Sweden’s Riksbank kept key rates unchanged today.
“We’ve had a strong move to the upside” in yields, said Karsten Linowsky, a fixed-income strategist at Credit Suisse Group AG in Zurich. “Everyone is waiting for these events, like the payrolls and the Fed meeting and that’s why we’ve seen pressure to the upside in yields.”
Five-year Treasury yields increased 10 basis points to 1.84 percent, the highest since May 2011, and 30-year rates added eight basis points to 3.88 percent.
Germany’s 10-year bund yield rose 10 basis points to 2.04 percent, the highest level since March 2012. The rate on French 10-year bonds increased 10 basis points to 2.63 percent as France’s borrowing at an auction today rose to the most since President Francois Hollande was elected. The government sold 4.24 billion euros ($5.59 billion) of 2023 debt at an average yield of 2.57 percent.
The 10-year U.K. gilt yield rose 13 basis points to 3.01 percent, the highest since July 2011, after Britain kept rates on hold and refrained from adding to its stimulus program.
Sweden’s 10-year bond yield jumped 15 basis points to a two-year high of 2.74 percent and the krona dropped versus all 16 of its major peers after Sweden’s central bank stuck to a plan to start raising borrowing costs late next year.
Austrian, Finnish, and Dutch 10-year yields also reached the highest in more than a year.
U.S. benchmark stock indexes rose for a third day, the longest rally since July. Louisiana-Pacific Corp. surged 11 percent after agreeing to buy Ainsworth Lumber Co. Costco Wholesale Corp. gained 2.8 percent as August sales beat analysts’ estimates. Groupon Inc. climbed 3.6 percent after Morgan Stanley upgraded the stock. Homebuilders and companies paying the highest dividends fell as Treasury yields surged.
Jobless claims declined by 9,000 to 323,000 in the week ended Aug. 31, less than the lowest estimate of economists surveyed by Bloomberg. Another report showed companies boosted employment by 176,000 workers in August, according to the ADP Research Institute.
Nonfarm payrolls data on Sept. 6 will probably indicate an increase of 180,000 in August, compared with a gain of 162,000 for July, according to a separate Bloomberg survey. The U.S. economy maintained a “modest to moderate” pace of growth from July to August, the Fed said yesterday in its Beige Book survey.
“U.S. payrolls is the key event,” Chris Green, a strategist at First NZ Capital Ltd., a brokerage and wealth-management firm, said from Auckland. “We’re looking at something around 190,000 and if we get that sort of number it reinforces the idea of Fed tapering occurring at the upcoming meeting.”
The Institute for Supply Management’s non-manufacturing index rose to 58.6 in August from 56 the prior month, topping the median forecast in a Bloomberg survey for a drop to 55. A reading greater than 50 indicates expansion in the industries that make up almost 90 percent of the economy.
Another report showed orders placed with U.S. factories fell less than forecast in July as rising fuel prices propelled the biggest gain in non-durable goods in a year.
A gauge of carmakers posted the biggest gain of 19 industry groups in the Stoxx Europe 600 Index as PSA Peugeot Citroen advanced 5.4 percent. Chief Executive Officer Philippe Varin forecast that the company’s market share will increase in the third quarter, according to an interview in Le Parisien newspaper.
Telecom Italia SpA jumped 8.4 percent after La Repubblica reported that Egyptian billionaire Naguib Sawiris may buy a stake in the phone company. The newspaper did not cite anyone. TeliaSonera AB slid 1.9 percent after Solidium Oy, Finland’s state-owned asset manager, started an accelerated book build to sell a stake in the Swedish telecommunications operator.
The MSCI Emerging Markets Index added 1 percent. The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong climbed 1 percent and benchmark gauges in Russia, South Korea, Taiwan and the Czech Republic gained at least 1 percent.
India’s Sensex index climbed for a second day, jumping 2.2 percent. Reserve Bank of India Governor Raghuram Rajan announced plans to make it easier for banks to open branches and lend to non-state sectors.
“This should give incentive for banks to offer U.S. dollar deposits to offshore investors,” Albert Leung, a strategist at Bank of America Merrill Lynch in Hong Kong, wrote today in a report. It “should bring in close to $10 billion of foreign exchange and stabilize the Indian rupee at around current levels,” he said.
Poland’s WIG20 Index fell 4.6 percent, the most since June. Poland said yesterday it will take over and cancel government bonds held by its privately managed pension funds. Morgan Stanley said today the changes are negative for stocks and will likely reduce inflows into equity markets. The five-year yield climbed to an 11-month high of 4.24 percent today and the zloty fell 1.4 percent versus the dollar.
Turkey’s lira fell as much as 1.6 percent to a record 2.0841 per dollar. Turkey’s central bank indicated that it will drop its defense of the lira to focus on keeping interest rates unchanged, according to economists who attended a private meeting with policy makers in Ankara yesterday.
Shares in the Middle East fell, with the main indexes for Abu Dhabi, Dubai and Qatar sliding at least 1.6 percent. Dubai’s stocks posted the biggest swings in the world in the past month as concern the U.S. is moving closer to a military strike against Syria led investors to exit this year’s best-performing index.
The Senate Foreign Relations Committee voted 10-7 in the first test of Congress’s willingness to back American military action against the Syrian regime. President Barack Obama is meeting world leaders at the Group of 20 summit in St. Petersburg today. The office of Russian President Vladimir Putin said there’ll no separate session on Syria at the summit.
West Texas Intermediate oil advanced 1.1 percent to $108.37 a barrel after a government report showed that inventories in Cushing, Oklahoma, the delivery point for the contract, dropped to the lowest level in a year and a half. The S&P GSCI gauge of 24 commodities climbed 0.2 percent as energy and industrial metals gained.