BLBG: Treasuries Decline as Dollar Rises Amid Signs of Economic Growth
American jobless claims increase less than economists predict
China’s factory gauge unexpectedly rises to highest since 2014
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Treasuries slumped, following their worst month in more than a year, amid signs of global growth as traders assessed prospects for higher interest rates in the world’s largest economy. The dollar rose, while crude fell.
Benchmark 10-year Treasury yields climbed for a third day after American jobless-claims data signaled a healthier labor market ahead of August’s employment figures. Global stocks advanced on reports showing China’s official factory gauge unexpectedly climbed, while U.K. factory activity reached a 10-month high. The S&P 500 Index was little changed, and the greenback increased against most of its major peers. Oil slid after U.S. government data showed crude stockpiles at the highest seasonal level in more than 20 years.
After global developments and weak May employment derailed rate-hike plans earlier this year, U.S. payrolls surged in June and July, and economists expect Friday’s Labor Department figures to show a gain of 180,000 in August, in line with the average for 2016. Fed Chair Janet Yellen said last week that the case for higher U.S. interest rates has strengthened, a message later reiterated by Vice Chairman Stanley Fischer. Traders assign a 38 percent chance the Federal Reserve will boost interest rates in September according to fed fund futures data compiled by Bloomberg.
“Today’s reports certainly don’t detract from the idea that the economy’s doing OK,” said Steve Chiavarone, a portfolio manager with Federated Investors in New York. “The Fed may be more hawkish than we expect, and we got a little taste of that with Yellen last week.”
Bonds
The yield on 10-year U.S. Treasuries increased four basis points, or 0.04 percentage points, to 1.62 percent at 9:45 a.m. in New York, after surging 13 basis points last month. The two-year note yield was little changed at 0.82 percent. The spread with the Treasury 30-year bond yield rose two basis points to 144 basis points, after being as little as 140 basis points on Tuesday, the narrowest level since January 2008. Shorter-dated debt is more sensitive to the outlook for monetary policy.
Bill Gross, the billionaire manager of the Janus Global Unconstrained Bond Fund, is recommending the Fed raise interest rates twice by as early as March. The market doesn’t expect that degree of monetary tightening even by the end of 2017.
“I would say ‘C’mon, let’s raise interest rates by 25 basis points in September,’ and ‘C’mon, six to nine months from now let’s do it again,’” Gross told Bloomberg Television’s Erik Schatzker on Wednesday. The money manager said the Fed and other central banks “are addicted to low and negative interest rates,” and need to break the habit even if it means economic pain now as opposed to later.
Stocks
U.S. stocks fluctuated, as falling crude prices tempered optimism on positive signs for global growth, while investors awaited Friday’s key payrolls data for an indication on the trajectory of interest rates. The S&P 500 Index rose 0.1 percent, following back-to-back declines and losses in five of six sessions. Still, the benchmark is less than 1 percent away of its Aug. 15 all-time high.
“All eyes are focusing in on tomorrow’s jobs report -- some of the softness we’ve seen in the market this week is a little bit of anxiety that the Fed might be raising rates in September as opposed to pushing back to December,” said Tom Wilson, senior investment manager and managing director of wealth advisory at Brinker Capital Inc. in Berwyn, Pennsylvania, which oversees $18 billion. “It’s really kind of a typical quiet summer day, where the news that’s been released thus far is not going to have a major impact.”
The Stoxx Europe 600 Index climbed for a second time in three days, extending gains after the U.K. factory activity report. Banks posted their biggest three-day jump since July. Automakers headed for their biggest advance in almost a month, and miners rebounded from a three-day slide.
The MSCI Emerging Markets Index dropped for a second day, paring this quarter’s gains to 6.9 percent.
Currencies
The dollar rose for a seventh day against the yen, its longest winning streak since March, as investors awaited the latest U.S. jobs report.
“This will be a very important payrolls number,” said Richard Falkenhall, a strategist at SEB AB in Stockholm. As the previous two readings were “very strong,” a figure around 200,000 on Friday would create “the base for further tightening already in September.”
The dollar rose 0.4 percent to 103.89 yen, after reaching 103.90, the highest since July 29. The U.S. currency strengthened 0.2 percent to $1.1139 per euro.
Commodities
West Texas Intermediate for October delivery declined 1.4 percent to $44.06 a barrel on the New York Mercantile Exchange. The contract dropped 3.6 percent to $44.70 on Wednesday, the biggest decline since Aug. 1.
Oil rose 7.5 percent in August amid speculation that OPEC talks in Algiers may lead to an agreement to manage the market. A cap on production would be positive, Al-Falih said in an interview last week, while ruling out an output cut. A freeze deal between members of the Organization of Petroleum Exporting Countries and other producers was proposed in February but a meeting in April ended with no final accord.
“Oil prices took another tug downwards yesterday” as “oil inventories continue to build,” said Michael Poulsen, an analyst at Global Risk Management Ltd. “Voices remain mixed on a potential agreement on an output freeze later this month.”
