Treasuries, Gold Rally as Stocks Retreat on Economy Concern
Swiss 10 franc banknotes. Photographer: Christophe Bosset/Bloomberg
Aug. 16 (Bloomberg) -- Frederic Neumann, co-head of Asian economic research at HSBC Holdings Plc, talks about China surpassing Japan as the world’s second-largest economy last quarter, capping the nation’s three- decade rise from Communist isolation to emerging superpower. He speaks with Erik Schatzker and Melissa Long on Bloomberg Television's "InsideTrack." (Source: Bloomberg)
Aug. 16 (Bloomberg) -- Bob Parker, senior adviser at Credit Suisse Group AG, talks about his investment strategy for Chinese stocks and emerging market debt. He speaks with Maryam Nemazee on Bloomberg Television's "Countdown." (Source: Bloomberg)
Aug. 16 (Bloomberg) -- Terry Ewing, co-head of U.S. equities at Ignis Asset Management, discusses the outlook for U.S. stocks and corporate earnings. He talks with Andrea Catherwood on Bloomberg Television's "The Pulse." (Source: Bloomberg)
Treasuries rallied, sending 10-year yields to the lowest level in more than 16 months, while stocks retreated and gold rose following reports showing weaker-than- forecast growth in New York manufacturing and Japan’s economy.
Treasury 10-year yields slid 8 basis points to 2.59 percent at 9:39 a.m. in New York, the lowest since March 2009. The Standard & Poor’s 500 Index slipped 0.5 percent to 1,073.59 and the Stoxx Europe 600 Index retreated 0.5 percent. The Swiss franc appreciated against all 16 of its major counterparts, and the yen advanced 1 percent to 85.38 per dollar. Gold for immediate delivery climbed for a third straight day.
U.S. bonds rallied as data showed global demand for long- term American financial assets rose in June and the Federal Reserve prepared to buy Treasuries this week to keep borrowing costs low. Japan’s economy grew 0.4 percent last quarter, less than the 2.3 percent rate projected in a Bloomberg survey of economists. A Fed gauge of the New York region’s manufacturing expanded less than forecast in August as orders and sales fell for the first time in more than a year.
“We’re in a weak macro environment,” said Simon Ballard, senior credit strategist at RBC Capital Markets in London. “The Japanese GDP story merely adds to last week’s poor macro data, pushing stocks lower and a flight into safe haven assets.”
Two-year Treasury yields fell 3 basis points to 0.496 percent, less than 1 basis point away from a record low reached last week. The central bank planned to purchase notes due from 2014 to 2016 tomorrow and debt due in 2016 to 2020 on Aug. 19, according to the Fed Bank of New York’s website.
Empire Manufacturing
Industrial and health-care companies led declines in all 10 industries in the S&P 500. The index declined 3.8 percent last week, the biggest loss since the start of July. About $1.9 trillion has been wiped from the value of global equities since the Fed said Aug. 10 that the pace of recovery in the world’s biggest economy will probably be “more modest” than forecast.
The Fed Bank of New York’s general economic index rose to 7.1 this month from 5.1 in July. Economists forecast the measure would rise to 8, according to the median estimate in a Bloomberg News survey. Readings greater than zero signal expansion in the so-called Empire State Index that covers New York, northern New Jersey and southern Connecticut.
Three shares fell for every two that rose in the Europe Stoxx 600. The MSCI Asia Pacific Index lost less than 0.1 percent, while Japan’s Nikkei 225 Stock Average slipped 0.6 percent to a six-week low. The MSCI Emerging Markets Index added less than 0.1 percent. The Shanghai Composite Index jumped 2.1 percent, the most in almost three weeks, as China’s demand for resources underscored the economy’s resilience.
M&A Watch
Takeover bids boosted some equities in Europe. Cairn Energy Plc rose 3.2 percent after Vedanta Resources Plc agreed to buy a stake of as much as 60 percent in the company’s Indian oil unit. The cost of insuring Vedanta’s bonds from default soared after the copper producer said it will issue as much as $6.5 billion of debt to fund the acquisition. Credit-default swaps tied to Vedanta rose 116 basis points to 649, the highest since May 26, according to data provider CMA.
The franc rose 0.6 percent to 1.3326 per euro, and strengthened 1.3 percent against the dollar to 1.0375. The yen appreciated versus all but the franc among its 16 major peers, rising 0.1 percent to 109.77 per euro. The Dollar Index, which tracks the U.S. currency against those of six trading partners, snapped a five-day gain, slipping 0.7 percent to 82.371.
German Bonds
German bonds rose, sending the yield on the 10-year bund down three basis points to 2.36 percent. The yield on the similar-maturity U.K. gilt fell five basis points to 3.07 percent.
Gold for immediate delivery climbed 0.7 percent to $1,224.47 an ounce. Commodities demand from emerging markets and limited growth in supply will help to support raw-material prices toward the end of the year, Goldman Sachs said. Copper for delivery in three months gained 1.6 percent and lead jumped 1.6 percent on the London Metal Exchange.
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