Bonds Rise With Gold, Yen as Weak China Data Stoke Haven Demand

  • Oil climbs as fuel stockpile drop outweighs crude supply gain
  • Most Asian index futures signal rebound; Nikkei futures drop

China's Trade Troubles: Too Much Pressure on Yuan?

Traders rushed into the safety of government bonds, the yen and gold on concern weakness in Chinese exports portends even slower global growth just as the Federal Reserve considers raising U.S. interest rates.

Treasuries rebounded from a four-month low, joining gains in European and Asian sovereign debt. Japan’s currency climbed against most major peers, while the pound fluctuated on concern over the U.K.’s plan to exit the European Union. The cost of insuring investment-grade corporate debt against losses jumped to a two-week high. Equities pared their slide as defensive companies rose. Oil topped $50 a barrel after a drop in U.S. fuel stockpiles.

Investors piled into safer assets after Chinese data showed exports fell the most since February amid weak global demand, and imports also declined. The figures came after minutes of the Fed’s last meeting showed policy makers see no reason not to raise benchmark rates in December. When combined with one of the worst starts to an earnings season for stocks since the bull market began seven years ago, and concern over the stability of the U.K.’s currency, traders see no little reason to take added risks.

“There’s a lot on the plate right now,” said Jeff Zipper, managing director of investments for The Private Client Reserve of U.S. Bank. “China’s trade data below estimates is an overhang in market, and from Europe, we’re hearing about a hard Brexit that’s making markets more jittery. We also had yesterday’s Fed minutes showing a strong chance we move in December, and the market is concerned about earnings season as well.”

Bonds

Treasuries joined a rally in government bonds on speculation that a slowdown in China could reinforce the need for central banks to maintain their accommodative policies. While the Fed is considering raising rates, it’s also monitoring risks from developments abroad.

“It’s not a robust economy, the kind you would expect the Fed to lean more aggressively into,” Bob Michele, global chief investment officer at JPMorgan Asset Management in New York, which oversees $1.7 trillion, said on Bloomberg Television. “Until other central banks dial down how much money they’re printing, every backup is going to be a buying opportunity for us -- I don’t want to fight that.”

Benchmark 10-year Treasury yields fell three basis points, or 0.03 percentage point, to 1.74 percent as of 5 p.m. in New York, according to Bloomberg Bond Trader data, while benchmark German bund yields slid from their highest level in a month.

The U.S. Treasury sold $12 billion of 30-year debt Thursday, drawing the greatest demand since July for the maturity.

The Markit CDX North America Investment Grade Index of credit-default swaps on highly-rated companies climbed one basis point to 76.5 basis points, according to data compiled by Bloomberg. The premium investors demand to own emerging-market sovereign bonds over U.S Treasuries widened to 336, according to JPMorgan Chase & Co. indexes.

Stocks

The slide in Chinese exports is the latest source of anxiety for the equity market, after lackluster results from companies including Alcoa Inc. and Honeywell International Inc. spurred concern over corporate profits. Mounting bets that the Fed will boost rates by December and a bitter U.S. presidential campaign that’s entering its final weeks are also keeping investors on edge.

“It’s going to take some pretty lousy data to persuade the Fed to not raise rates,” said Art Hogan, chief market strategist and director of research for Wunderlich Securities in Boston. “The Fed’s letting us know that December is something they have to be talked out of, not into.”

MSCI’s global equity gauge lost 0.5 percent, falling for a third day, while a measure of emerging-market shares extended a three-day slide to more than 3 percent.

The S&P 500 Index declined 0.3 percent to 2,132.55, trimming a drop that reached as much as 1.1 percent. Power companies, coveted for their high fixed payouts, rose with real estate investment trusts and health-care shares as investors sought out safety. Financial stocks slumped as the rally in Treasuries sent bond yields lower, a day before several big banks report third-quarter results.

European miners fell from near a 14-month high, with BHP Billiton Ltd. and Rio Tinto Group dropping at least 4.4 percent. Carmakers also declined, dragging down Germany’s DAX Index. The Stoxx Europe 600 Index dropped 0.9 percent.

Egyptian stocks rose the most among 94 equity benchmarks on speculation the country is about to devalue its currency after receiving cash aid from Saudi Arabia. The pound slumped to records in black-market and futures trading.

In Asia, most index futures signaled gains for Friday, with contracts on benchmarks in Australia, South Korea, Hong Kong and China up at least 0.1 percent. Yen-denominated Nikkei 225 Stock Average futures, however, dropped 1.1 percent in Chicago.

Currencies

Japan’s currency rose 0.5 percent against the dollar, as the euro briefly fell below $1.10 for the first time since July. China’s yuan touched a six-year low in Shanghai, while a gauge of the greenback versus major peers dropped 0.3 percent, its first retreat this week.

“The Fed is also paying attention to the rest of the world and, if the Chinese situation is not as strong as what people think, then the Fed may move more cautiously,” said Sim Moh Siong, a currency strategist at Bank of Singapore Ltd., based in the city state. “That may undermine the dollar’s strength.”

The market-implied probability that the Fed will increase rates by its December meeting is about 66 percent, the lowest this week, according to fed fund futures data. The calculation is based on the assumption that the effective fed funds rate will trade at the middle of the new Federal Open Market Committee target range after the next increase.

The pound ended Thursday up 0.4 percent, after swinging between gains and losses amid concern over Prime Minister Theresa May’s perceived hard-line stance on leaving the EU. The currency started rallying Wednesday after she agreed to give British lawmakers the chance to scrutinize the Brexit plan.

Thailand’s baht held gains, rising 0.3 percent Thursday, after the Royal Household Bureau said King Bhumibol Adulyadej, the world’s longest reigning monarch, had died.

Commodities

Oil rose as declines in U.S. fuel supplies and crude inventories at Cushing, the key American storage hub, offset the first nationwide oil stockpile gain since August.

West Texas Intermediate for November delivery climbed 0.5 percent to close at $50.44 a barrel on the New York Mercantile Exchange, while Brent for December settlement rose 22 cents to $52.03 a barrel on the London-based ICE Futures Europe exchange. The global benchmark closed at a $1.18 premium to December WTI.

Gold futures for December delivery gained 0.3 percent to $1,257.60 an ounce on the Comex in New York. The metal has surged 19 percent this year as slower global growth coupled with stimulus policies by central banks outside the U.S. added to its appeal.

Copper posted the biggest loss since June as uncertainty in China, the world’s biggest metal consumer, damped prospects of more demand growth ahead.

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE