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Treasuries Tumble as U.S. Stocks Drift; Oil Jumps: Markets Wrap

A pedestrian walks past an electronic stock board displaying a graph of the exchange rate of the yen against the U.S. dollar at a securities firm in Tokyo, Japan, on Thursday, Aug. 30, 2018. Japan's Topix index closed lower after fluctuating as investors assessed trade frictions and geopolitical risks.

(bloomberg)

(Bloomberg) -- A selloff in Treasuries deepened and trading volume jumped amid evidence the American economy keeps growing. U.S. stocks edged higher, crude rallied above $76 a barrel and the dollar rose.

The S&P 500 Index eked out a gain after earlier climbing to within a whisker of an all-time high. Steep losses in rate-sensitive shares from utilities to real-estate firms weighed on the measure. Banks surged as 30-year Treasury yields popped to the highest since 2014, while the two-year rate jumped to a pre-crisis high and 10-year yields hit levels last seen in 2011.

The moves were sparked by data on private payrolls and American services industries that underscored the economy’s robustness at the same time Chairman Jerome Powell signaled the Federal Reserve will press on with rate hikes. More than two million 10-year Treasury futures contracts traded before the 3 p.m. settlement, about 170 percent above average.

The retreat in equities rekindled discussions of the tug-of-war between rising rates and stocks, as investors weigh allocations. The equity gains come days after the Trump administration clinched a new Nafta deal, removing some investor angst that the trade wars would spiral out of control. While political risks remain in Europe and Washington, there’s few signs they’ll spilling into financial markets.

“It will likely become an issue when higher yields lead to slower economic activity through the interest rate sensitive housing and durable goods areas,” Brian Jacobsen, senior investment strategist at Wells Fargo Asset Management, said. “These things tend to go too far too soon and tend to correct when the enthusiasm for growth gives way to worries about the weight of higher debt servicing costs.”

Elsewhere, crude in New York rose past $76 a barrel, trading near the highest level in almost four years, while aluminum in London rose the most since 2011. European shares rallied, and emerging-market equities slipped. MSCI Inc.’s Asia Pacific share index fell for a third day, with Japanese and South Korean equities leading declines. The rupiah and the rupee remained under pressure on surging oil prices. In India, the focus was also back on the country’s financial sector after Prime Minister Narendra Modi’s government took control of a financial firm.

Terminal users can read our Markets Live blog.

Here are some key events coming up this week:

  • American factory orders for August are due Thursday; data on the trade balance will come Friday.
  • The U.S. government’s September jobs report is also due on Friday.
  • The Reserve Bank of India’s policy decision is due Friday.

These are the main moves in markets:

Stocks

  • The S&P 500 Index rose 0.1 percent at 4 p.m. in New York. It had been on track for a record close.
  • The Dow Jones Industrial Average rose 0.3 percent, adding to an all-time high.
  • The Russell 2000 Index gained 1 percent.
  • The Stoxx Europe 600 Index jumped 0.5 percent
  • The MSCI Asia Pacific Index sank 0.7 percent to the lowest in more than two weeks.
  • The MSCI Emerging Market Index slipped 0.1 percent.

Currencies

  • The Bloomberg Dollar Spot Index climbed 0.4 percent, hitting the highest in almost four weeks with its fifth straight advance.
  • The euro fell for a sixth day, dropping 0.3 percent to $1.1518.
  • The Japanese yen declined 0.7 percent to 114.43 per dollar.

Bonds

  • The yield on 10-year Treasuries climbed nine basis points to 3.15 percent.
  • The 30-year rate topped 3.30 percent, rising nine basis points. Two-year yields climbed four basis points to 2.8516 percent.
  • Italy’s 10-year yield decreased 14 basis points to 3.31 percent, the first retreat in a week and the biggest tumble in more than two weeks.

Commodities

  • West Texas Intermediate crude climbed 1.4 percent to $76.27 a barrel, the highest in almost four years.
  • Gold futures fell 0.4 percent to $1,202.20 an ounce.

--With assistance from Adam Haigh, Samuel Potter and Edward Bolingbroke.

To contact the reporters on this story: Jeremy Herron in New York at jherron8@bloomberg.net;Vildana Hajric in New York at vhajric1@bloomberg.net

To contact the editors responsible for this story: Jeremy Herron at jherron8@bloomberg.net, Robert Brand

©2018 Bloomberg L.P.

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