The dollar rose and US bond yields neared 14-month highs yesterday on improved sentiment toward the nation’s economy after rating agency Standard & Poor’s dropped its negative credit outlook for US government debt.
S&P upgraded the US credit outlook to “stable” from “negative”, saying the chances of a downgrade of the country’s rating is “less than one in three”.
The dollar extended gains versus the yen to hit a session high, while prices for long-dated Treasury debt slipped, continuing a selloff sparked by uncertainty over when the Federal Reserve would begin scaling back bond purchases.
The 30-year bond’s yield rose to its highest since April 2012, after the S&P revision, while the 10-year note’s yield touched 2.20 per cent for just the second time since then.
German Bund futures fell to a three-month low, The September Bund futures contract settled down 54 ticks at 142.85, its lowest since mid-March.
Analysts and investors said the S&P news was unlikely to spur a sharp rally or impact speculation about when the Fed might ease back on its bond buying, but added to generally upbeat sentiment about the outlook for the US economy.
Stocks fell in Europe and straddled break-even on Wall Street as investors assessed equity valuations that are no longer as attractive as last year or at the beginning of 2013. Along with uncertainty regarding the Fed, it makes a sustained rally less likely now.
“It’s enough to put the markets in a period of what I think will be drawn-out consolidation,” said Steven Einhorn, vice chairman at hedge fund Omega Advisors Inc in New York.
MSCI’s all-country world equity index rose 0.2 per cent even as the FTSEurofirst 300 of leading European shares slide 0.08 per cent to close at 1,193.27.
Unexpectedly weak Chinese import data prompted investors to dump cyclical miners and buy defensive companies such as Deutsche Telekom and Bayer.
European mining shares tumbled, with Lonmin losing 3.2 per cent, Anglo American down 2.8 per cent and Rio Tinto off 2.4 per cent.
Chinese imports in May fell 0.3 per cent, against expectations for a six per cent rise, as the volume of many commodity shipments fell from a year earlier.
China’s economy grew at its slowest pace for 13 years in 2012 and so far this year economic data has surprised on the downside, bringing warnings from some analysts that the country could miss its growth target of 7.5 per cent for this year.
The Dow Jones industrial average was down 4.23 points, or 0.03 per cent, at 15,243.89.
The Standard & Poor’s 500 Index was up 0.01 points, or 0.00 per cent, at 1,643.39. The Nasdaq Composite Index was up 5.70 points, or 0.16 per cent, at 3,474.92.
The dollar rose as high as 99.28 yen and last traded at 98.78, up 1.28 percent on the day, according to Reuters data.
Against the euro, the dollar gained about 0.08 per cent to 1.3233.
The 30-year or long bond fell 11/32 in price to yield 3.3626. The benchmark 10-year US Treasury note was down 8/32 in price to yield 2.2079 per cent.
Brent crude traded near $104 per barrel, off 58 cents at $103.98. US light sweet crude oil fell 23 cents to $95.80 per barrel. (Reuters)