Traders Absorb Shocks as Bonds Rally, FAANGs Drop: Market Wrap

(Bloomberg) -- A quiet Thursday in June turned turbulent as a rally in Treasury bonds snowballed, shaking up trading desks with a sudden flurry of volume, and a week-long rally in technology stocks was snuffed out.

Unsettled by currency and stock routs in Brazil and signs of distress in other emerging markets, traders flocked to Treasuries, igniting gains that at one point pushed the 10-year yield down nine basis points in a matter of minutes. Some of the drop was later pared. In equities, the Nasdaq 100 Index fell 0.8 percent, the most in three weeks.

“Up until about an hour ago this was all okay because the rotation into financials on higher rates was kind of offsetting,” said Tom Essaye, a former Merrill Lynch trader who founded “The Sevens Report” market newsletter. “But with yields lower, financials are basically flat now and techs just weighing, acting like an anchor.”

Turkey and Brazil intensified efforts to protect their currencies from speculative attacks by investors as emerging markets face their biggest test since the 2013 taper tantrum.

Turkey surprised analysts by tightening monetary policy Thursday for the third time in less than two months, while Brazil’s central bank sold extra foreign-exchange swap contracts for the second time this week, boosting investors’ protection again further declines in the currency. The lira surged and the real briefly pared losses after the actions.

After weeks in the doldrums, equities had managed to regain some swagger in recent days. The global expansion narrative had remained intact, Treasury yields were holding below the psychological barrier of 3 percent and U.S. technology shares -- the drivers of past rallies -- had been notching successive records. Investors will now be watching the G-7 meeting this week for clues on the trade outlook, as well as this month’s meetings of both the Federal Reserve and the European Central Bank to gauge the path of interest rates.

“The market also continues to be skeptical over any degree of progress made and remains at a point where it is viable to look for opportunity to take profit while it can to justify profit taking in a market that is still defined by improving fundamentals,” said John Stoltzfus, the chief investment strategist of Oppenheimer & Co.,

The Stoxx Europe 600 Index fell after disappointing data on euro-area exports and German factory orders. The euro had rallied amid talk of an end to the ECB’s quantitative easing program.

Terminal users can read more in Bloomberg’s Markets Live blog.

These are some key events to watch this week:

• G-7 Leaders’ Summit starts in Quebec Friday through to June 9.

These are the main moves in markets:

Stocks

• The S&P 500 Index fell 0.2 percent, the Dow Jones Industrial Average gained 0.2 percent and the Nasdaq Composite Index dropped 0.8 percent as of 3:07 p.m. in New York.
• The U.K.’s FTSE 100 Index fell 0.1 percent.
• The MSCI Emerging Market Index slumped 0.3 percent.
• Japan’s Nikkei 225 Stock Average gained for a fourth day, increasing 0.9 percent.

Currencies

• The Bloomberg Dollar Spot Index was little changed, after dropped as much as 0.3 percent.
  The euro rose 0.2 percent to $1.1799.
• The British pound gained 0.1 percent to $1.3421.
• The Japanese yen strengthened 0.5 percent to 109.68 per dollar.

Bonds

• The yield on 10-year Treasuries fell five basis points to 2.92 percent.
• Italian 10-year yields rose 12 basis points to 3.06 percent.

Commodities

• West Texas Intermediate crude gained 1.9 percent to $65.96 a barrel.
• Gold rose 0.1 percent to $1,297.34 an ounce.

To contact the reporters on this story: Sarah Ponczek in New York at sponczek2@bloomberg.net;Janine Wolf in New York at jwolf71@bloomberg.net

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

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