Treasuries, Oil Retreat as China Shares Enter Bull Market

Oil fell for a third day as the flow of crude from the Middle East was unaffected by a surge in violence in Libya and Iraq. Treasuries fell, while U.S. stocks were little changed as corporate deals offset concern over crises abroad.

West Texas Intermediate dropped 0.4 percent, to settle at $101.67 a barrel. Ten-year Treasury yields increased two basis points to 2.49 percent. The Standard & Poor’s 500 Index was up less than 0.1 percent after paring a 0.6 percent drop earlier. Chinese shares in Hong Kong entered a bull market, while Russian stocks and the ruble fell amid the threat of further sanctions.

The Federal Reserve will announce its next policy decision on July 30 and investors will get a reading on second-quarter growth that same day. Goldman Sachs Group Inc. said in a report last week that equities are at risk of a temporary selloff, citing rising bond yields and high valuations.

“Everything’s a little murky,” said Irwin Michael, fund manager at ABC Funds in Toronto. His firm manages about C$900 million. “With what’s happening in Russia and the Ukraine and what sort of sanctions will be put on, that’s a concern, and there’s concern about the Middle East and Gaza.”

The Treasury sold $29 billion of two-year notes at the highest yield in more than three years as investors bet the economy will be strong enough for the Federal Reserve to remain on pace to raise interest rates next year.

Treasuries Yields

The securities were sold at a yield of 0.544 percent, the most since the May 2011 monthly auction drew 0.56 percent. The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of debt offered, was 3.22, the lowest since March, versus an average of 3.39 at the past 10 sales.

The difference between five- and 30-year Treasuries yields narrowed to 155.49 basis points, the least since 2009, as subdued inflation supported longer maturities. The Fed’s Open Market Committee will scale back its monthly asset purchases to $25 billion from $35 billion on July 30, according to economists surveyed by Bloomberg, keeping it on pace to end the program late this year.

Among U.S. stocks moving today, Cummins Inc. fell 3.2 percent to lead industrial shares lower. AcelRx Pharmaceuticals Inc. tumbled 41 percent after saying it failed to win approval for its pain treatment Zalviso from the Food and Drug Administration.

Corporate Takeovers

Trulia Inc. jumped 15 percent, extending a record three-day rally, as Zillow Inc. agreed to purchase the company for $3.5 billion. Family Dollar Stores Inc., a discount store chain, soared 25 percent after Dollar Tree Inc. agreed to buy it.

Housing data from the National Association of Realtors suggested that the residential market is struggling to strengthen as an index of pending home sales declined 1.1 percent in June after rising 6 percent in May.

The S&P 500 recovered today after retreating 0.5 percent on July 25 and losing as much as 0.6 percent this morning. Not since the bull market began has buying dips been a surer way of making money.

Declines in the benchmark gauge for American equity are lasting an average of 1.5 days in 2014, the shortest since at least 2009, according to data compiled by Bloomberg. Starting last year, returns on days after the index fell have averaged 0.13 percent, the highest since they were 0.38 percent in 2009.

Earnings Season

Pfizer Inc., Reynolds American Inc. and American Express Co. are among about 150 S&P 500 companies reporting this week. About 78 percent of U.S. companies that have posted results this season have beaten analysts’ estimates for profit, while 66 percent exceeded sales projections, according to data compiled by Bloomberg.

Quarterly profit growth is poised for the fastest increase in almost three years. Companies in the S&P 500 have reported an 11 percent gain in second-quarter earnings, data compiled by Bloomberg show. Should the pace continue, the gain would exceed all periods since the third quarter of 2011.

“It is quite an important week in terms of earnings reports,” Raimund Saxinger, a fund manager at Frankfurt-Trust Investment GmbH, which oversees about $22 billion, said in a phone interview. “Earnings have been good and markets want to see that this is going to carry on.”

Outside the U.S., international pressure mounted on Israel to end its three-week offensive in the Hamas-controlled Gaza Strip, with President Barack Obama and the United Nations Security Council demanding an immediate truce.

Separatist War

The Stoxx Europe 600 Index closed down 0.2 percent. President Vladimir Putin faces intensifying U.S. and European sanctions aimed at forcing him to help end the separatist war in neighboring Ukraine. The Obama administration said it had satellite photos showing Russia firing across the border at Ukraine forces.

Russia’s Micex lost 1.9 percent, extending declines from this year’s peak to more than 10 percent. The ruble retreated for a third day, heading for the weakest level since May. Satellite photos show Russia has shelled across the border into Ukraine, the U.S. said.

The Hang Seng China Enterprises Index has risen more than 20 percent from this year’s low as government stimulus boosts investor confidence in the world’s second-largest economy.

Nickel, sugar and heating oil lost at least 0.9 percent to lead declines in 15 of 24 commodities tracked by the S&P GSCI Index, sending the gauge down 0.4 percent.

Crude in New York slipped for the fourth time in five days after clashes between militias in Tripoli didn’t spread to oil-export terminals. The conflict in Iraq spared the country’s main oil-producing region. WTI slid last week after government data showed that gasoline stockpiles rose to a four-month high as demand declined.

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