Treasuries Fall as Dollar Gains in Payrolls Countdown; Oil Rises
Treasuries Fall as Dollar Gains in Payrolls Countdown; Oil Rises
(Bloomberg) -- Treasuries declined and the dollar advanced in the countdown to a key U.S. jobs report that’s seen shaping expectations for the timing of the next interest-rate increase. Oil rose as Russia said it will seek a deal with major producers to freeze output.
Yields on 10-year Treasuries climbed to the highest level this week before monthly nonfarm payrolls data that has exceeded estimates in the last two readings. The Bloomberg Dollar Spot Index extended a second weekly gain. European equity advanced while a measure of U.S. stock volatility hovered near a two-year low. Crude pared its biggest weekly drop since January, and gold traded close to the lowest since June.
“Investors are on tenterhooks ahead of today’s U.S. employment report following a host of hawkish Fed comments,” said Nick Stamenkovic, a fixed-income strategist at broker RIA Capital Markets Ltd. in Edinburgh. “The front-end is vulnerable to an upside surprise in payrolls and that explained a pick-up in yields ahead of the data.”
Federal Reserve Vice Chairman Stanley Fischer said this week that upcoming economic reports would determine the trajectory of interest-rate increases, having previously highlighted Friday’s payrolls update as being of importance. Odds of a rate increase at the Fed’s September meeting have swung between 34 percent and 36 percent this week amid conflicting data showing an improving jobs market and an unexpected contraction in manufacturing.
Bonds
The yield on 10-year Treasuries rose two basis points to 1.59 percent at 6:50 a.m. in New York, leaving it down four basis points this week. The two-year yield increased by one basis point to 0.79 percent. It’s still down five basis points for the week.
U.S. jobs growth probably slowed to 180,000 last month from 255,000 in July, according to the median of 89 estimates in a Bloomberg survey of economists. A payrolls number of more than 200,000, “accompanied by accelerating wage growth, would significantly increase the pressure on the Fed to hike rates” at the meeting set for Sept. 20-21, RIA’s Stamenkovic said.
Japanese government bonds due in a decade or more declined amid uncertainty over whether the Bank of Japan will tweak its debt-buying program this month and concern over demand at upcoming auctions. The 10-year yield touched minus 0.02 percent, the highest since March.
“Yields are rising on wariness that the BOJ might reduce purchases in the super-long sectors when it meets this month,” said Souichi Takeyama, a rates strategist at SMBC Nikko Securities Inc. in Tokyo. “Rising volatility is also raising concerns about demand at a slew of auctions this month, putting upward pressure on yields in these maturities.”
Currencies
The Bloomberg Dollar Spot Index gained 0.2 percent after slipping 0.4 percent on Thursday, its first loss in a week. The yen fell 0.3 percent, extending its weekly slide to 1.7 percent.
“There is potential for markets to whipsaw should we see robust U.S. jobs data,” Sharon Zollner, a senior economist in Auckland at ANZ Bank New Zealand Ltd., said in a client note. “A stronger U.S. labor market isn’t new news for the Fed or its watchers, rather, it is areas such as manufacturing and retail that are currently causing concern, not to mention a generalized lack of inflation. But nonetheless, payrolls data is traditionally a big market mover, so buckle up.”
South Korea’s won strengthened 0.4 percent. The central bank raised its second-quarter economic growth estimate to 3.3 percent, having previously announced a 3.2 percent expansion from a year earlier.
Stocks
The Stoxx Europe 600 Index added 0.5 percent. Equities have struggled to maintain momentum in recent weeks, and a Bank of America report showed investors pulled cash from funds tracking the region’s equities for a 30th straight week.
Rocket Internet SE slid 9.8 percent after the German startup investor announced a first-half loss. SBM Offshore tumbled 12 percent after a Brazilian prosecutor failed to ratify a leniency agreement related to a bribery case concerning Petroleo Brasileiro SA. Adidas AG lost 1.3 percent after Callaway Golf Co.’s chief executive officer said it will not bid for the German company’s golf division.
Futures on the S&P 500 Index added less than 0.1 percent after the gauge closed at its lowest level this week on Thursday. Still, a measure tracking volatility expectations for U.S. stocks was little changed at 13.5, close to a two-year low reached in August.
The MSCI Emerging Markets Index gained 0.4 percent, trimming its second consecutive week of declines to 0.7 percent.
Commodities
The Bloomberg Commodity Index rose 0.4 percent, cutting its slide since Aug. 26 to 3 percent.
Crude oil rose 1 percent to $43.59 a barrel in New York, after tumbling 9.4 percent over the last four days. U.S. inventories increased last week, keeping supplies at the highest seasonal level in at least three decades, official data showed Wednesday. OPEC members plan to meet this month in Algiers to discuss action to stabilize the market and Saudi Arabia has said a cap on production would be positive. Russian President Vladimir Putin said he’s confident such a deal will be agreed.
Gold fell 0.2 percent, headed for a 0.8 percent weekly loss. The metal retreated since mid-August as hawkish comments by Fed officials spurred speculation a U.S. rate hike is coming, eroding the appeal of assets such as bullion that don’t bear interest.
Most industrial metals rose on Friday in London, led by a 0.7 percent advance in tin. Lead, tin and zinc all climbed to levels last seen in the first half of 2015, having been buoyed by data on Thursday that indicated manufacturing is picking up in China, the world’s second-biggest economy.
--With assistance from Emma O'Brien Chikako Mogi Choong En Han Anchalee Worrachate Alan Soughley and Eddie van der Walt To contact the reporters on this story: James Regan in Hong Kong at jregan19@bloomberg.net, Stephen Kirkland in London at skirkland@bloomberg.net. To contact the editors responsible for this story: Stephen Kirkland at skirkland@bloomberg.net, David Goodman at dgoodman28@bloomberg.net.
