U.S. Stocks Snap Slide; Treasury Rally Continues: Markets Wrap

(Bloomberg) -- U.S. stocks rebounded from a slump that took them to a 12-week low, while Treasuries resumed a rally that pinned yields at 20-month lows amid concern that the trade spat with China could derail global growth. Oil tumbled.

The S&P 500 pared its May decline to 5%, with the 200-day moving average providing support during an afternoon swoon. Technology shares paced the gain, while banks contributed most to losses. A fresh batch of economic data suggested the expansion was on firm footing before the Trump administration escalated the trade war earlier in May, but an inversion in part of the yield curve has investors on edge about the threat of a recession.

The 10-year Treasury yield continued its march lower, hitting 2.22% for the second straight day. Investors dumped high-grade bond funds at the fastest pace since 2015 in the week ended Wednesday, while utility stocks sought for their yield fell for a fourth straight day. The dollar traded at a five-month high. Crude slumped 3% to below $57 a barrel. Gold rose.

Turbulence in stocks and the march lower in bond yields this week suggest investors are increasingly coming to terms with an uncertain outlook for markets. The possibility that Beijing may cut exports of rare-earth minerals, along with signs that U.S.-EU talks aren’t going anywhere meaningful, are adding to trade tensions. Meanwhile, bond markets are flashing a warning, with the yield gap between three-month and 10-year Treasuries, often watched as an early signal of pending recession, sliding to a 2007 low Wednesday.

“What’s going on in Treasury markets is ultimately a repricing of growth expectations,” John Bilton, head of global multi-asset strategy at JPMorgan Asset Management, said on Bloomberg TV. “We don’t see a recession coming in the next 12 months even allowing for the yield-curve inversion we’ve seen, typically that’s a signal that has a long lead time.”

The Stoxx Europe 600 climbed, led by media firms, a day after posting its biggest drop in nearly three weeks. Asian markets were mixed, with Shanghai edging lower as China notched a fresh escalation of the tariff war by putting U.S. soybean purchases on hold.

Elsewhere, oil traded around $59 a barrel after the release of an industry report showing a much bigger-than-expected drop in U.S. crude stockpiles.

Here are some key events coming up:

• China provides a first peek at its May economic performance on Friday, with economists anticipating the official manufacturing PMI will tick down to 49.9 amid the worsening trade war with the U.S.
• On Friday, data is due on the Fed’s preferred measure of price pressures; the gauge, which excludes food an energy, is forecast to be steady at an annual 1.6%.

And these are the main moves in markets:

Stocks

• The S&P 500 rose 0.2% at 4 p.m. in New York time.
• The Nasdaq 100 Index lost 0.4% and the Russell 2000 Index fell 0.3%.
• The Stoxx Europe 600 Index rose 0.4%.
• The Shanghai Composite Index declined 0.3%, the first retreat in a week.
• The MSCI Emerging Market Index climbed 0.9%, the highest in more than a week on the biggest increase in eight weeks.

Currencies

• The Bloomberg Dollar Spot Index was flat after touching the highest in more than five months.
• The euro climbed 0.1% to $1.1140.
• The Japanese yen slipped 0.1% to 109.65 per dollar.
• The onshore yuan increased 0.1% to 6.906 per dollar.

Bonds

• The yield on 10-year Treasuries decreased four basis points to 2.22%, the lowest in 20 months.
• The yield on two-year Treasuries dipped four basis points to 2.07%, the lowest in more than 15 months.
• Germany’s 10-year yield gained less than one basis point to -0.175%.

Commodities

• West Texas Intermediate crude fell 2% to $57.57 a barrel.
• Gold futures rose 0.5% to $1,292.70 an ounce.

--With assistance from Andreea Papuc, David Wilson and Yakob Peterseil.

To contact the reporters on this story: Jeremy Herron in New York at jherron8@bloomberg.net;Vildana Hajric in New York at vhajric1@bloomberg.net

To contact the editors responsible for this story: Christopher Anstey at canstey@bloomberg.net, Cecile Gutscher

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