U.S. Stocks Fall With Treasuries, Dollar Climbs: Markets Wrap
U.S. stocks halted a six-day rally as disappointing results from Walmart Inc. weighed on major indexes as the dollar pushed higher. Treasuries fell amid a heavy slate of U.S. debt issuance, with short-end auctions drawing some of the highest yields in almost a decade. The S&P 500 Index slipped below its average price for the past 50 days. Walmart sank the most since 1988, while a rally in chipmakers boosted the Nasdaq 100 Index. The Treasury’s auctions of two-year notes and three- and six-month bills went off at rates unseen since 2008, while the 10-year rate was up to 2.89 percent. The greenback gained versus major peers. The U.S. Treasury on Tuesday sold $179 billion of securities as it works to rebuild its cash balance. Surging rates catalysed one of the steepest equity selloffs in years two weeks ago. While investors seem to have adjusted to 10-year rates at a four-year high, the deluge of supply could push yields higher, weakening the case for owning stocks at elevated valuations. 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. In Europe, the Stoxx 600 index edged higher after a pullback in equities emerged in Asia following several days of increases. Benchmarks in Japan and South Korea slid more than 1 percent. The yen weakened. Elsewhere, WTI oil traded in New York climbed above $62 a barrel for the first time in more than a week. Bitcoin broke above $11,500, almost double its intraday low from just two weeks ago.
Euro Area Hits Speed Bump on Road to Faster Economic Growth
A speed bump in economic momentum in February won’t interrupt the euro area’s upswing. A composite Purchasing Managers’ Index indicates that the 19-nation economy is expanding at a quarterly pace of 0.9 percent, the fastest in eight years, IHS Markit said on Wednesday. That’s even though the gauge fell to 57.5 from 58.8 in January, according to the London-based company. An improvement in business optimism “bodes well, suggesting that companies are expecting the slowdown to be short-lived,” said Chris Williamson, chief business economist at IHS Markit. “The rate of expansion remains impressive.” While growth remains solid, the euro-area PMI reading was weaker than economists forecast. The numbers for manufacturing and services in both Germany and France, the region’s biggest economies, also fell short of expectations. The euro slipped 0.2 percent to $1.2315 as of 10:42 a.m. London time and the region’s stocks retreated, with the Stoxx Europe 600 Index down 0.6 percent. Policy makers at the European Central Bank are growing more confident that the region’s robust economic expansion will slowly translate into faster inflation, paving the way for a gradual withdrawal of monetary stimulus. The economy probably expanded 2.4 percent in 2017, the most in a decade. While order growth slowed in February to a five-month low, companies still boosted staffing levels at one of the quickest rates in the past 17 years, according to the report. Factory-gate inflation accelerated at the fastest pace since 2011, services providers slightly slowed the rate at which they raise prices. The report follows earlier releases showing business activity in France slowed in February while the German economy is on track for its fastest quarterly growth in seven years.
No Buyers for Indian Bonds Means More Pain for Modi’s Debt Plan
The biggest holders of India’s sovereign debt are dumping them. State lenders have been selling 4.7 billion rupees ($73 million) of government bonds on average every day this year, hurt by deep portfolio losses, data from the Clearing Corp. of India show. Last year, their net daily inflows totalled 368 million rupees, and in 2016, the run rate was at 3 billion rupees a day. Their sale in a market where there’s a paucity of buyers is contributing to a vicious downward spiral, where losses keep worsening. It will be difficult for debt auctions to sail through without participation from the state banks when Prime Minister Narendra Modi’s new borrowing program begins in April, according to Sandeep Bagla, associate director at Trust Capital Services in Mumbai. “State-run banks have reduced secondary market activity, which is impacting volumes in a big way,” said Bagla. “They are investing selectively in state government bonds, but staying away from federal bonds.” The average daily volumes on the central bank’s trading system have dropped to 307 billion rupees since Jan. 1, from 385 billion rupees in 2017. Sovereign bonds in India have sold off for six consecutive months, hurt by concerns of a wider government deficit and higher oil prices.