Bonds Fall, Stocks Drop Ahead of Powell Testimony: Markets Wrap




 

(Bloomberg) -- U.S. Treasuries fell along with European government bonds and stocks as investors scaled back bets on the extent of Federal Reserve easing before testimony by Chairman Jerome Powell. Crude oil gained.

The yield on 10-year Treasuries moved above 2.1% for the first time in a month. Strong manufacturing data from France also weighed on core European bonds, with yields on German bunds rising due in part to low demand at an auction. S&P 500 index futures pointed to a lower open in New York and the Stoxx Europe 600 gauge headed for a fourth day of declines. The trading session in Asia was mixed, with modest gains in Hong Kong and South Korea and declines in Japan and China. The dollar was steady, and the pound strengthened for the first time in four days as data showed the U.K. economy rebounded in May.

Powell's two days of semi-annual testimony in Congress on the economic and policy outlook will set expectations for the Fed's policy meeting at the end of July. With both equities and bonds sitting on outsize gains since the start of the year, it's unclear what further impetus they can get given that traders are already discounting a cycle of interest-rate cuts. Investors will also scour June meeting minutes out today for any sign that the Fed may pull back on policy easing.

"There is a very real risk that the Fed maintains a neutral stance as members are decidedly split on the need for policy accommodation," said Nema Ramkhelawan-Bhana, an economist at FirstRand Bank Ltd. in Johannesburg. "If Powell follows a similar tack, it would immediately unravel the weave of risk that global markets have constructed over the last month."

Meanwhile, U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin spoke on the phone with their Chinese counterparts, marking the first high-level contact after their presidents agreed to resume trade talks last month.

Elsewhere, West Texas intermediate crude gained the most in a week as an industry report showing a continued draw-down in U.S. crude inventories tightened a supply outlook that's being threatened by rising tension in the Middle East. Mexico's peso steadied after sliding on news that the country's finance minister quit.

Here are some key events coming up:

Powell testifies before Congress on monetary policy and the state of the U.S. economy on Wednesday (the House of Representatives) and Thursday (the Senate).Fed minutes are due on Wednesday, ECB minutes on Thursday.A key measure of U.S. inflation -- the core consumer price index, due Thursday -- is expected to have increased 0.2% in June from the prior month, while the broader CPI is forecast to remain unchanged.U.S. producer prices are due on Friday.

Here are the main moves in markets:

Stocks

Futures on the S&P 500 Index declined 0.3% as of 6:21 a.m. New York time.The Stoxx Europe 600 Index decreased 0.2% to the lowest in more than a week.The U.K.'s FTSE 100 Index dipped 0.2% to the lowest in more than a week with its fifth consecutive decline.Germany's DAX Index declined 0.5% to the lowest in almost two weeks.The MSCI Asia Pacific Index advanced 0.1%.The MSCI Emerging Market Index jumped 0.4%.

Currencies

The Bloomberg Dollar Spot Index decreased 0.1%.The euro increased 0.1% to $1.1221, the biggest climb in more than two weeks.The British pound advanced 0.1% to $1.2477.The Japanese yen fell less than 0.05% to 108.88 per dollar.

Bonds

The yield on 10-year Treasuries climbed four basis points to 2.10% to the highest in four weeks.Germany's 10-year yield jumped six basis points to -0.29% on the biggest surge in 13 months.Britain's 10-year yield increased six basis points to 0.783% to the highest in more than a week .

Commodities

Gold fell 0.1% to $1,395.76 an ounce.West Texas Intermediate crude gained 2.1% to $59.06 a barrel to the highest in more than a week.Iron ore dipped 2.3% to $114.01 per metric ton.

--With assistance from Adam Haigh.

To contact the reporter on this story: Laura Curtis in London at lcurtis7@bloomberg.net

To contact the editors responsible for this story: Samuel Potter at spotter33@bloomberg.net, Robert Brand

For more articles like this, please visit us at bloomberg.com

©2019 Bloomberg L.P.

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