Treasuries gained with German bunds as falling commodity prices curbed the outlook for inflation. Stocks rebounded in Europe, while China’s shift to a more market-oriented exchange rate reverberated through developing economies.
Oil led commodities lower as Iran said OPEC production may hit a record after sanctions on the country are lifted. That’s boosting the value of fixed-income assets and fueling speculation the Federal Reserve will keep rates lower for longer. Investors are reassessing emerging markets following China’s shock devaluation of its yuan last week and amid potential losses in revenue from raw materials and political crises from Malaysia to Turkey and Brazil.
“A further drop in crude oil is having an effect on inflationary pressures in the U.S. and in Europe,” said Daniel Lenz, lead market strategist at DZ Bank AG in Frankfurt. “This is a driver for the drop” in European yields as well, he said.
Treasuries rose for the first time in four days, sending yields on 10-year notes down two basis points to 2.18 percent at 6:45 a.m. in New York. The Bloomberg Commodity Index slid to a 13-year low as oil extended its retreat in a bear market. European stocks rose after German Chancellor Angela Merkel said she’s confident the International Monetary Fund will join Greece’s bailout. Malaysia’s currency tumbled to the weakest since 1998.
The yield on German 10-year bunds slid two basis points to 0.64 percent, while that on similar-maturity Italian bonds fell four basis points to 1.77 percent.
Supply Glut
The Bloomberg Commodity Index fell 0.2 percent. Oil declined in New York on the production outlook and as U.S. drilling activity sustained its increase. Copper declined on sign of slowing growth in China.
West Texas Intermediate fell 1.1 percent to $42.05 a barrel in New York. Brent was little changed. Copper sank as much as 1 percent and aluminum declined 0.8 percent in London.
Gold advanced 0.2 percent to $1,117.41 an ounce. The metal climbed 1.9 percent last week, the first weekly advance since June, on haven demand.
The MSCI Emerging Markets Index lost 1.1 percent, dropping to the lowest level since October 2011. Taiwan’s dollar led declines in currencies, dropping 0.9 percent. A gauge of 20 exchange rates fell to a record low, extending an eighth week slump in the longest run of losses since 2000.
Malaysia’s ringgit slid as much as 1.3 percent to the weakest since Aug. 31, 1998, the day before the country implemented a fixed exchange rate to halt losses during the Asian financial crisis. The FTSE Bursa Malaysia KLCI Index dropped 1.5 percent toward its lowest since June 2012.
Currency Reserves
Central bank Governor Zeti Akhtar Aziz said Thursday foreign-exchange reserves will need to be rebuilt after they fell below $100 billion for the first time since 2010. She ruled out introducing a currency peg or capital controls.
Turkey’s lira weakened as much as 0.6 percent to a record 2.8495 per dollar after talks last week failed to form a coalition government.
The Stoxx Europe 600 Index added 0.2 percent, while benchmark gauges in Portugal and Greece led gains in western Europe. Futures on the Standard & Poor’s 500 Index slipped 0.1 percent.
Greece’s ASE Index 0.7 percent and the yield on 10-year bonds fell 53 basis points to 9.02 percent, the lowest since February. Merkel said she’s confident the IMF will join the third bailout program and signaled willingness to consider debt relief to help make it happen. The comments came after euro-area finance ministers backed the 86 billion-euro ($96 billion) aid package on Friday.
Bank Bonds
Greek bank bonds tumbled after finance chiefs shielded deposits in the bailout. Senior bondholders will instead face losses if Greek lenders tap into any of the financial stability funds set aside in the new bailout.
Alstom SA jumped 5.4 percent following a report that General Electric Co. is expected to win European Union approval for its acquisition of assets from the French company. Airbus Group SE gained 1 percent after IndiGo, India’s biggest airline, confirmed it will buy as many as 250 if its planes.
Estee Lauder Co., Urban Outfitters Inc. and Agilent Technologies Inc. report earnings on Monday.
The Empire State factory index probably increased in August, according to the median economist forecast.
source: Bloomberg
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