Bonds Gain With Emerging Assets as Fed Looms; Stocks Fluctuate
(Bloomberg) -- U.S. Treasuries gained with emerging-market assets as futures traders held to bets that the Federal Reserve won’t raise interest rates this week amid ongoing financial- market volatility.Stocks struggled for direction after their biggest weekly advance since July.
The Standard & Poor’s 500 Index was little changed after paring earlier losses in trading 28% below the 30-day average at this time of day. Equities in developing nations rose for the first time in three days. Treasuries edged higher, sending the yield on the 10-year note lower by two basis points. Copper declined for a second day on concern slowing growth in China will hurt demand.
Traders are predicting there’s a 30% chance that the Fed will raise borrowing costs at its Sept. 16-17 meeting, down from more than 50% before China’s currency devaluation roiled financial markets and raised concern about global growth. The country’s industrial output missed economists’ forecasts and investment in the first eight months increased at the slowest pace since 2000, data showed this weekend.
“The main thing that’s going to be moving U.S. stocks this week will be the Fed meeting; there’s going to be volatility whatever happens,” said Kully Samra, who manages U.K. clients for Charles Schwab in London. “The economy is in a good place. It’s not gangbusters, but it’s got growth, so now is probably a good time to touch rates.”
U.S. 10-year Treasuries climbed a second day at 9:53 a.m. in New York. The bond market suggests policy makers will wait to raise rates, while economists are almost equally divided.
With odds this low, if the Fed were to move it would have a “major impact” on markets, according toPhilip Marey, a senior market economist at Rabobank Groep in Utrecht, the Netherlands.
In Europe, more economists are now forecasting the European Central Bank will expand its stimulus program to support a faltering economy, though bond investors have yet to be convinced with government bonds in the area little changed today.
The MSCI Emerging Markets Index advanced 0.5%, with equity benchmarks in Russia, India and Malaysia climbing at least 0.8%.
The Shanghai Composite dropped 2.7%, while the benchmark index for stocks in the southern city of Shenzhen plunged 6.7%, the most since Aug. 25. The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong was little changed after capping its biggest weekly advance in five months on Friday.
“The market is not positioned for the Fed to raise rates,” said Aurelija Augulyte, a senior strategist at Nordea Bank AB in Copenhagen, who favors commodity currencies like the Brazilian real and South African rand after they "overshot" their fair values. “The Fed is not in a rush and even if they do hike, which they might, they will talk down the rate path, and maintain the gradualist tone, which should be emerging-market positive.”
China’s authorities are faced with a juggling act that’s getting more complex by the month, as they seek to cushion the economic slowdown, support the stock market, stabilize the yuan and press on with reforms to give market forces a bigger role in allocating resources.
The S&P 500 was fell 0.5% after jumping 2.1% last week. Trading in American equities was light amid a two-day Jewish holiday.
The Stoxx Europe 600 Index slipped 0.7%, after earlier climbing as much as 0.9%. Banks and basic- resource producers led declines. While the Stoxx 600 fell 14% from its record in April through last week’s close, strategists remain confident the index will rebound and post its best year since 2009. They forecast the gauge will climb about 18% in 2015, outperforming U.S. equities and recovering all ground lost after China devalued the yuan in August. The S&P 500 will rise 12% from the last close through December, according to projections.
Copper and other industrial metals dropped after weak Chinese industrial output and fixed-asset investment bolstered concern that demand growth will stall in the world’s biggest user. Copper lost 1.2%, with nickel, zinc and lead losing at least 2%. Gold held near a one-month low.
West Texas Intermediate crude fell 0.8% to $44.28 a barrel. It sank 2.8% on Friday, capping a weekly loss of 3.1% amid ongoing concern over a glut. Brent crude dropped 1.6% to $47.38.
Goldman Sachs helped stoke declines into the end of last week, saying that oil prices could slide to as low as $20 a barrel as the global surplus is even bigger than they first estimated. Brent dropped 0.9% Monday to $47.70, after sinking 3% last week.
The yen increased 0.2% to 120.39 per dollar. Japan also reviews monetary policy this week. With the country’s economy struggling to gather momentum, 11 of 35 economists surveyed by Bloomberg see the central bank stepping up easing measures in October, while two are forecasting a move as soon as Tuesday.
The Australian dollar stayed higher after Malcolm Turnbull won the party ballot to become nation’s prime minister. The Aussie rose 0.5% after falling as much as 0.4% earlier following the Chinese data.
With assistance from Jonathan Burgos in Singapore, Emma O'Brien in Wellington, Sofia Horta e Costa, Lucy Meakin, Cecile Vannucci, Amanda Jordan, Neil Denslow and Maria Levitov in London and Nick Gentle in Hong Kong.