BLBG: Treasuries, U.S. Stocks Retreat; New Zealand Kiwi Weakens
Treasuries fell amid faster-than-forecast growth in American service industries, while U.S. benchmark stock indexes retreated from records. The New Zealand dollar slid as a dairy exporter said some shipments may contain a bacteria that can cause botulism.
Ten-year Treasury yields rose five basis points to 2.65 percent, while the rate on similar-maturity German bunds was up three basis points at 1.69 percent. The Standard & Poor’s 500 Index slipped 0.1 percent while the Stoxx Europe 600 Index was up 0.1 percent after climbing as much as 0.6 percent. The yen strengthened 0.4 percent to 98.59 per dollar. New Zealand’s dollar weakened against its 16 main peers while U.S. milk futures lost 0.4 percent in Chicago after gaining as much as 2.2 percent earlier.
The Institute for Supply Management’s non-manufacturing index increased to 56 in July, higher than the median economist estimate of 53.1 and the prior month’s 52.2. Euro-area services output shrank at a slower pace than initially estimated in July, London-based Markit Economics said today. An index of China’s non-manufacturing sectors in July increased for the first time since March. Federal Reserve Bank of Dallas President Richard Fisher will speak today on the U.S. economy in Portland, Oregon.
“We’re finally seeing economic data picking up,” Andrea Williams, who helps oversee $76 billion as head of European equities at Royal London Asset Management, said by phone. “The U.S. is still delivering strong data and core Europe is OK. The valuation of the market is still supportive.”
Yield Gaps
Thirty-year Treasury bond yields increased four basis points to 3.73 percent and two-year rates were up less than one basis point at 0.31 percent. Two years after S&P stripped the U.S. of its top rating, America’s credit quality is getting a boost from economic growth outpacing that of the 12 nations graded AAA.
The gap between Treasury five- and 10-year note yields is wider than that for the higher-rated sovereigns, showing fixed-income investors anticipate the U.S. will grow faster than its peers, according to data compiled by Bloomberg. Other measures also show the U.S. improving, as the cost to insure against default is the lowest since 2009, the dollar has risen the most since 2008 and stocks are trading near all-time highs.
Higher Valuations
The S&P 500 closed at a record of 1,709.67 on Aug. 2, pushing its valuation to a three-year high. The benchmark index is trading at 15.5 times estimated earnings,compared with an average of 13.9 over the last five years, data compiled by Bloomberg showed. Analysts projected companies on the gauge will increase their third-quarter earnings per share by 3.3 percent from a year earlier, and their profit in the fourth quarter by 9.9 percent, according to estimates compiled by Bloomberg.
The S&P 500 is up 20 percent in 2013 and has rallied about 150 percent from its bear-market low in 2009.
“The market has put on such a powerful move this year that regardless of the numbers that come out we’re due for some type of pullback, even if it’s brief in duration and mild in severity,” Matthew Kaufler, a portfolio manager at Federated Investors Inc. in Rochester, New York, said by phone. His firm oversees $363.8 billion.
Utility, energy and industrial companies led losses in seven of the 10 main industry groups in the S&P 500 today, while technology and telephone companies performed the best.
Qualcomm Inc. dropped 1.5 percent as Piper Jaffray Cos. cut its rating on the company. Berkshire Hathaway Inc. climbed 0.6 percent after posting second-quarter earnings that exceeded analysts’ projections. Tyson Foods Inc. rose 3.5 percent after reporting third-quarter results that beat estimates.
The Stoxx 600 fluctuated after gaining for five straight days. A six-day rally would be the longest of the year for the regional benchmark. Fourteen of the 19 industry groups in the European index advanced, while trading volumes were 27 percent less than the 30-day average.
European Movers
HSBC Holdings Plc, Europe’s largest bank, slid 4.6 percent after earnings trailed projections and Chief Executive Officer Stuart Gulliver said the lender’s fast-growing emerging markets are slowing.
Lloyds Banking Group Plc rose 2.8 percent as the Financial Times reported that the lender plans to pay as much as 70 percent of profit as dividends by 2015. PostNL NV, the biggest Dutch postal operator, declined 10 percent, the most since January, after second-quarter sales missed analysts’ estimates.
The MSCI Emerging Markets Index advanced for a third day, climbing 0.1 percent. The Shanghai Composite jumped 1 percent. A measure of China’s non-manufacturing sector gained to 54.1 in July from 53.9 in June, government data showed Aug. 3. A services index from HSBC and Markit Economics was unchanged at 51.3, a separate report showed today.
Kiwi, Milk
New Zealand’s dollar, known as the kiwi, fell 0.7 percent to 77.83 U.S. cents, after touching 76.93, the lowest since July 8. China and Russia halted imports of some milk powder from New Zealand’s Fonterra Cooperative Group Ltd. after the largest dairy exporter warned of a contaminated ingredient. Fonterra said on Aug. 3 that three batches of the product made last year may contain the bacteria.
Australia’s 10-year bond yield declined 19 basis points, or 0.19 percentage point, to 3.61 percent. Retail sales growth unexpectedly stalled in June, data showed before a central bank meeting. The Reserve Bank of Australia will probably cut the benchmark interest rate to 2.5 percent tomorrow, according to the median of 27 estimates in a Bloomberg survey of economists.
Oil fell for a second day, losing 0.3 percent to $106.60 a barrel in New York, and Brent crude slipped 0.5 percent to $108.42. Libya reopened a terminal closed by protests and Iranian President Hassan Rohani pledged in his inaugural speech to take a moderate approach.
U.S. natural gas futures were down 0.2 percent, paring losses after falling as much as 1 percent to $3.314 per million British thermal units, the lowest since Feb. 22, amid forecasts for below-average temperatures this month. Coal for 2014 delivery dropped for a seventh day to an all-time low, sliding 0.7 percent to $82.60 a metric ton, broker data compiled by Bloomberg show.
To contact the reporters on this story: Guy Collins in London at guycollins@bloomberg.net; Nick Taborek in New York at ntaborek@bloomberg.net
To contact the editor responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net
