Dollar Rises With Treasury Yields; Stocks Struggle: Markets Wrap
Treasuries fell, with investors driving the benchmark yield up to the highest level in four years, as the dollar advanced with oil futures in New York. European shares erased earlier gains and U.S. futures slipped. Debt investors appeared to be trading with caution as Treasury markets reopened after the Presidents’ Day break. Declines in auto and banking shares depressed the Stoxx Europe 600 index, after a pullback in equities emerged in Asia after several days of increases, with more than 1 percent declines for benchmarks in Japan and South Korea. The VIX index of S&P 500 volatility increased for a second day. The yen weakened, and the yield on 10-year Treasuries eased after rising as high as 2.93 percent. Treasuries are under pressure before the U.S. gets set to increase debt supply with three days of auctions today totalling $258 billion. While speculators are turning bearish, money managers are looking at the highest U.S. yields in years as a buying opportunity in a world where shorter-term Japanese and German notes still carry negative yields. Investors will also get to parse minutes this week from the most recent meetings of both the Federal Reserve and the European Central Bank. The U.S. stock market only had a taste of the potential damage from higher bond yields, with the biggest test yet to come, according to Morgan Stanley. “Appetizer, not the main course,” is how the bank’s strategists described the correction of late January to early February.
U.K. Factories Rein in Price Expectations From a 34-Year High
U.K. manufacturers scaled back their expectations of output prices in February as the pound gained. Expected prices, production and export orders are still well above long-term averages, though have slipped from the highs seen at the end of last year, the Confederation of British Industry reported on Tuesday. The measure of average prices seen in the next three months fell to 25 from 40, the highest since 1984. The pound has appreciated more than 3 percent this year against the dollar, curbing the cost of imported goods and taking some of the edge off what the Bank of England has called a “sweet spot” for exporters. The 2016 decision to leave the European Union pushed the currency lower, but trading arrangements have yet to change. Output increased in 16 out of 17 manufacturing sectors, led by food, drink and tobacco, and transport equipment, the CBI said. Respondents to the survey of 397 manufacturers, conducted between Jan. 26 and Feb. 13, expect production to slow somewhat in the next three months.
India’s Sensex Declines a Third Day as Mahindra Shares Pace Fall
Indian shares declined, with the benchmark gauges extending their retreat to a third straight day. The equity indexes erased the gains they held through the day in the last half an hour. The benchmark S&P BSE Sensex dropped 0.2 percent at the close in Mumbai, taking its February slide to 6.3 percent, putting it on course for the worst monthly performance in two years. Mahindra & Mahindra Ltd.’s 2.2 percent fall was the steepest among Sensex members after the car-and-tractor maker said Monday it will invest an additional 5 billion rupees ($77 million) on electric vehicles. Sentiment toward Indian stocks soured this month as investors assess the impact of a long-term capital gains tax on equities along with a decision by Indian exchanges to end licensing accords with counterparts abroad, and an almost $2 billion bank fraud engulfing state-owned lenders. “Higher valuations are a challenge and rising volatility can be worrisome if there’s a downward bias in the market,” said Sampath Reddy, chief investment officer at Pune-based Bajaj Allianz Life Insurance Co. “Factors such as the impact of tax on equities, the dispute with SGX and MSCI, bad-loan problems of banks are weighing on investor minds and leading toward negative sentiment,” he said. The NSE Nifty 50 Index dropped 0.2 percent — closing a second straight session below its 100-day moving average — a trend line that has supported its rally for more than a year. The last time it fell below the mean was in November 2016, when it went on to decline more than 7 percent.