BLBG: Bonds Fall, Euro Gains as ECB Stands Pat; U.S. Stocks Fluctuate
Draghi won’t add to stimulus for now, sees economy risks
S&P 500 mixed after record close, Stoxx 600 retreats
Share on Facebook
Share on Twitter
Government bonds retreated from Germany to the U.S. while the euro advanced after the European Central Bank signaled stimulus expansion was on hold even as risks to the economy intensify. American equities were mixed amid corporate earnings.
The 10-year Treasury yield rose to the highest in a almost a month, while the euro rose for the first time in three days after ECB President Mario Draghi refrained from adding to stimulus. The S&P 500 Index fluctuated near an all-time high as Intel Corp. slipped on results, while General Motors Co. rose after it topped estimates. European shares slid from a four-week high as results dragged airlines lower. Turkish stocks fell the most worldwide.
Almost $5 trillion has been added to the value of global equities since June 27 amid signs central banks including the BOJ will boost stimulus to shore up economies after the U.K. voted to leave the European Union. Earnings have also played a part, with positive surprises helping lift the S&P 500 to a record.
“We’ve been grinding higher making new highs and the earnings season has been pretty friendly to the market so far against the backdrop of economic data that has been positive,” Jim Davis, regional investment manager for The Private Client Group of U.S. Bank, said by phone. That “has helped the market take its mind off some of the other risks out there, mainly geopolitical ones. It’s not too surprising the ECB didn’t do anything. There just hasn’t been a lot of data post-Brexit.”
Stocks
The Stoxx 600 slipped 0.6 percent at 8:53 a.m. in New York, with the volume of shares changing hands about 20 percent less than the 30-day average. S&P 500 futures expiring in September lost 0.1 percent, while contracts on Japan’s Nikkei 225 fell 1.2 percent.
Lufthansa tumbled 7 percent, and EasyJet Plc slid 6.3 percent after posting a drop in quarterly revenue. Hermes International SCA gained 3.4 percent as the luxury clothing and handbag maker said its profitability improved. Miners in the Stoxx 600 advanced for the first time in three days.
In the U.S., GM gained 4.1 percent after posting record second-quarter earnings of $2.9 billion. Intel slipped after reporting slower growth in its server-chip division, while Qualcomm Inc. gained as its results showed the chipmaker is overcoming hurdles in China. Joy Global Inc. rallied 20 percent after Japan’s Komatsu Ltd., the world’s second-biggest mining and construction equipment maker, agreed to buy it. Komatsu added 2.3 percent.
The Borsa Istanbul 100 Index slumped 3.6 percent. Turkey imposed a three-month state of emergency as the government pursues those responsible for last week’s failed military coup, detaining thousands of army officers, judges and prosecutors. A wider purge is under way that encompasses universities, schools and the civil service. The country won’t be under military rule, with army units taking orders from provincial governors, President Recep Tayyip Erdogan said in Ankara on Wednesday.
The FTSE Bursa Malaysia KLCI Index dropped 0.7 percent. U.S. prosecutors said they plan to seize assets after more than $3.5 billion was misappropriated from 1Malaysia Development Berhad, a state development fund known as 1MDB that was previously headed by Prime Minister Najib Razak. Singapore said it seized S$240 million ($177 million) in assets linked to the alleged fraud. The ringgit slid 0.3 percent.
Currencies
The euro gained 0.2 percent to $1.1039. Draghi indicated the ECB will consider adding fresh stimulus later this year when it has a clearer picture of the economic impact from the U.K.’s vote to leave the European Union.
“Over coming months, when we have more information including staff projections, we will be in a better position to assess the underlying macroeconomic conditions,” Draghi said.
The yen pared gains after an interview in which Bank of Japan Governor Haruhiko Kuroda dismissed the idea of so-called helicopter money was revealed as having been conducted in June. The yen advanced 0.7 percent to 106.15 per dollar. The interview with Kuroda in which he said there was no need or possibility of helicopter money was conducted in mid-June, the Wall Street Journal said, citing BBC Radio 4 producer Sandra Kanthal.
“The market had to unwind part of that initial reaction,” said John Hardy, head of foreign-exchange strategy at Saxo Bank A/S in Hellerup, Denmark. “If it was something that he said very recently, it would be maybe a sign that he disapproves of the latest market action. Whereas if it’s a couple of weeks’ old, it’s not a direct communication aimed at what the market is doing. It’s just a general statement.”
New Zealand’s dollar dropped 0.4 percent after the Reserve Bank of New Zealand said further monetary easing is likely to be required to lift inflation, reinforcing expectations interest rates will be cut next month.
The Bloomberg Dollar Spot Index was little changed, after four days of gains. A Citigroup gauge that tracks the degree to which American economic data are exceeding projections is at an 18-month high and futures put the chance of a Federal Reserve interest-rate increase this year at 47 percent, up from 9 percent at the end of June.
Commodities
Oil for September delivery fell 0.5 percent $45.51 a barrel in New York and Brent crude slid 0.4 percent to $46.97 in London.
Nickel in London extended gains, touching a nine-month high at $10,730 a metric ton on the London Metal Exchange, as the Philippines cracks down on more mines, disrupting supplies. China, the top consumer, more than doubled foreign purchases of the refined metal to a record in the first half.
Gold advanced 0.3 percent to $1,319.60 an ounce after closing at a three-week low. The metal has alternated between gains and losses for eight straight days.
Bonds
Germany’s 10-year bond was little changed, with the yield at minus 0.005 percent.
The yield on similar-maturity U.S. Treasuries was 1.58 percent. It sank to a record 1.32 percent on July 6 and analysts see it ending the year at 1.74 percent, a Bloomberg survey shows.
New Zealand’s 10-year yield declined three basis points to a two-week low of 2.26 percent. Swaps traders are pricing in an 89 percent chance the RBNZ will cut its interest rate from a record low next month, up from 64 percent a week ago.
The cost of insuring investment-grade corporate debt against default dropped to the lowest since March 11. The Markit iTraxx Europe Index of credit-default swaps declined one basis point to 68 basis points. A gauge of swaps on junk-rated companies fell five basis points to 318 basis points, near a six-week low.
