US Treasuries fell as the latest data showed a resilient economy and jobs market, underscoring the likelihood that the Federal Reserve will keep raising interest rates.
(Bloomberg) — US Treasuries fell as the latest data showed a resilient economy and jobs market, underscoring the likelihood that the Federal Reserve will keep raising interest rates.
The yield on two-year Treasury bonds jumped 12 basis points after a report showed the US economy expanded at a faster rate earlier estimates in the first quarter, while first-time unemployment claims undershot expectations. The dollar reversed a decline to gain against major peers.
Contracts for the S&P 500 and Nasdaq 100 indexes stayed higher, with chipmaker Micron Technology Inc. advancing more than 3% in pre-market trading after it delivered an upbeat sales forecast late on Wednesday. Bank of America Corp. and Wells Fargo & Co. led gains in financial companies as the lenders passed the Federal Reserve’s stress test, clearing the way for shareholder payouts.
Earlier, Federal Reserve Chair Jerome Powell said at least two interest-rate increases are likely necessary this year to bring the inflation rate down to the central bank’s 2% target. European Central Bank President Christine Lagarde and Bank of England Governor Andrew Bailey also said at this week’s conference in Portugal that they have a ways to go in reining in price increases.
While their comments lifted bond yields across the board, equities clung to recent gains — the S&P 500 is up 5% this month — with investors focusing on the relatively resilient economic backdrop that should support company earnings, especially in the technology sector.
“We are seeing a tug of war. Markets are not buying into what all the major central banks are saying,” said Peter Garnry, head of equity and quantitative strategy at Saxo Bank AS. “Even Powell’s comments have not been enough to really dent sentiment in equity markets.”
Unless the earnings outlook worsens dramatically, especially in technology and artificial intelligence-linked companies, “it will be hard to see markets’ animal spirits disappear,” he added.
Europe’s Stoxx 600 rose for the third day, with a gauge of auto stocks gaining more than%. Renault SA jumped after raising its full-year earnings guidance, thanks to strong sales momentum from new models. Hennes & Mauritz AB surged more than 15% after the Swedish retailer reported a smaller-than-expected decline in earnings as it cut costs and made progress reducing its inventory build-up.
While the consensus view is that the US economy is still headed for recession, many now reckon the downturn will be less severe than feared. Strength in consumer confidence and home sales buoyed stocks earlier in the week, and data later on Wednesday is expected to show first-quarter GDP expanded at 1.4% at an annualized rate.
Daniel Lam, head of equity strategy for Standard Chartered Wealth Management, said on Bloomberg Television that positive economic surprises help explain the gains across equities. But “if the hurdle gets higher and higher, becomes harder to beat, investors may be rotating into other regions such as Japan and Asia,” Lam warned.
Meanwhile, the latest data from the euro region showed inflation re-accelerated in Germany and drastically slowed in Spain, evidence of uneven progress that’s keeping the ECB focused on further monetary tightening.
Key events this week:
- US GDP, initial jobless claims, Thursday
- Atlanta Fed President Rafael Bostic speaks, Thursday
- China manufacturing PMI, non-manufacturing PMI, balance of payments, Friday
- US personal income and spending, University of Michigan consumer sentiment, Friday
Some of the main moves in markets:
Stocks
- S&P 500 futures rose 0.3% as of 8:39 a.m. New York time
- Nasdaq 100 futures rose 0.2%
- Futures on the Dow Jones Industrial Average rose 0.4%
- The Stoxx Europe 600 rose 0.2%
- The MSCI World index was little changed
Currencies
- The Bloomberg Dollar Spot Index rose 0.1%
- The euro was little changed at $1.0907
- The British pound was little changed at $1.2626
- The Japanese yen fell 0.1% to 144.66 per dollar
Cryptocurrencies
- Bitcoin rose 1.8% to $30,635.04
- Ether rose 2% to $1,867.05
Bonds
- The yield on 10-year Treasuries advanced nine basis points to 3.79%
- Germany’s 10-year yield advanced six basis points to 2.38%
- Britain’s 10-year yield advanced four basis points to 4.35%
Commodities
- West Texas Intermediate crude fell 0.4% to $69.26 a barrel
- Gold futures fell 0.2% to $1,919.20 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Catherine Bosley.
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