BLBG: Treasuries, Gold Rally as Stocks Fluctuate on Economy Concern
Aug. 16 (Bloomberg) -- Treasuries rallied, sending 10-year yields to the lowest level in more than 16 months, while gold rose to a six-week high following reports showing weaker-than- forecast growth in New York manufacturing and Japan’s economy. The Swiss franc appreciated and stocks fluctuated.
Treasury 10-year yields slid 8 basis points to 2.60 percent at 12:07 p.m. in New York, the lowest since March 2009. The Standard & Poor’s 500 Index rose 0.2 percent to 1,081.50 and the Stoxx Europe 600 Index gained less than 0.1 percent. The Swiss franc appreciated against all 16 of its major counterparts, and the yen advanced 1 percent to 85.38 per dollar. Gold climbed $8 to $1,224.60, the highest since July 1.
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 lower borrowing costs. 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.
“More and more of the data continues to leave us in a limbo in the sense that it’s not bad enough to say it’s officially over and we’re going to go into a double-dip” recession, said E. William Stone, who oversees $104 billion as chief investment strategist at PNC Wealth Management in Philadelphia. “Even when we get good stuff, it’s not enough to say here’s the relief.”
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
Health-care companies fell the most among 10 industries in the S&P 500, which declined 3.8 percent last week, the biggest loss since the start of July. About $1.9 trillion has been erased 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.
European Takeovers
The MSCI Asia Pacific Index climbed 0.2 percent, while Japan’s Nikkei 225 Stock Average slipped 0.6 percent to a six- week low. 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.
Takeover bids boosted some equities in Europe. Cairn Energy Plc rose 5.3 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.
Franc, Yen
The franc rose 0.7 percent to 1.3317 per euro, and strengthened 1.3 percent against the dollar to 1.0376. 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 rose, sending the yield on the 10-year bund down 3 basis points to 2.36 percent. The yield on the similar- maturity U.K. gilt fell 5 basis points to 3.07 percent.
Gold futures for delivery in December climbed $8, or 0.7 percent, to $1,224.60 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 Group Inc. said in a report. Copper for delivery in three months on gained 1 percent to $3.2845 a pound the Comex in New York and lead jumped 1.5 percent on the London Metal Exchange.
Latin American Stocks
Latin American stocks gained, with the MSCI EM Latin America Index climbing 0.8 percent. Chile’s Lan Airlines SA rallied to a record after saying it plans to add international commercial routes and expand its freight business to build on its $3.7 billion purchase of Brazil’s Tam SA, announced on Aug. 13. Lan climbed 4.2 percent to 14,490 pesos in Santiago trading. Tam advanced 5.2 percent to 38.08 reais in Sao Paulo.
Lan, based in Santiago, will have 43 percent of the domestic airline market in Brazil, Latin America’s largest economy, and $4.9 billion in annual sales. Lan already is the region’s biggest airline by market value while Tam is the largest by revenue. Together, they will have an unrivalled network of 116 destinations in 23 countries.
The MSCI Emerging Markets Index of 21 developing countries rose 0.5 percent after falling 3 percent last week.
--With assistance from Kelly Bit in New York and Eduardo Thomson and James Attwood in Santiago. Editors: Stephanie Borise, Nick Baker.
To contact the reporter on this story: Stephen Kirkland in London at skirkland@bloomberg.net
To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net.
