Treasuries and the dollar gained after a report showed American manufacturing unexpectedly shrank in June. Most U.S. equities advanced, while European shares rallied and Italian bonds gained.
Ten-year Treasury yields lost six basis points to 1.59 percent at 4 p.m. in New York, while the dollar rose versus nine of 16 major peers. The Standard & Poor’s 500 Index erased earlier losses after last week capping its best June rally since 1999. The Stoxx Europe 600 Index added 1.5 percent as investors bet central banks will add to efforts to fight the debt crisis. Oil slid 1.4 percent to $83.75 a barrel following a 9.4 percent jump on June 29, its biggest since 2009.
Concern about the U.S. economy grew after the Institute for Supply Management’s manufacturing index fell to 49.7, showing contraction for the first time in almost three years and trailing the median economist estimate of 52. The S&P 500 followed European equities higher in the first half hour of trading after factory output in the euro area topped initial forecasts and manufacturing in Japan and China beat estimates.
“This is not good,” Dan Greenhaus, chief global strategist at broker-dealer BTIG LLC in New York, said in a note to clients. “Not good at all. Despite the decline of manufacturing’s importance to the U.S. economy, the ISM Manufacturing Index remains a premier economic indicator and a reading below 50 in June is incredibly, incredibly worrisome,” he wrote. “Investors have to begin, at a minimum, considering the possibility” that the U.S. will slip into a recession, he said.
About two stocks rose for each one that declined on U.S. exchanges. The S&P 500 increased 0.3 percent after falling as much as 0.5 percent earlier in the day. The Dow Jones Industrial Average dropped 0.1 percent, with DuPont Co., General Electric Co. and Bank of America Corp. losing more than 1.5 percent. JPMorgan Chase & Co., AT&T Inc. and American Express Co. climbed more than 1.4 percent.
Gauges of phone-service providers and utilities rose at least 0.7 percent to lead advances among the main industry groups in the S&P 500. Best Buy Co. added 5.9 percent after the Minneapolis Star-Tribune reported that founder Richard Schulze is close to making a bid for the electronics retailer.
Global equities rallied the most this year on June 29, sending the MSCI All-Country World Index up 3 percent, as European leaders reduced aid requirements for Spain and Italy. The 4.7 percent gain for the month was the most in June since 1999, helping stocks beat the dollar, bonds and commodities in the first half of 2012.
The S&P 500 has rebounded more than 6 percent since June 1 and 10-year Treasury yields have increased from a record low of 1.4387 that day, when the Labor Department reported the nation added 69,000 jobs in May for the weakest employment growth in a year. The S&P GSCI Index of commodities has rebounded more than 6 percent after falling to the lowest level since 2010 on June 21. Labor Department data on July 6 is forecast to show employers added fewer than 100,000 jobs for a third month, adding to signs the world’s largest economy is cooling.
Thirty-year U.S. bonds also rose today, sending their yields down six basis points to 2.69 percent. Two-year rates lost one basis point to 0.30 percent.
Investors are plowing cash into new Treasuries at a record pace, making economic growth rather than budget austerity a key issue as President Barack Obama and Mitt Romney face off in November’s presidential election.
Bidders offered $3.16 for each dollar of the $1.075 trillion of notes and bonds auctioned by the Treasury Department this year, above the previous high of $3.04 in all of 2011, according to data compiled by Bloomberg. The so-called bid-to- cover ratio was 2.26 from 1998 to 2001 when the nation ran budget surpluses.
The Stoxx 600 extended its two-day gain to 4.2 percent. Aviva Plc, the U.K.’s second-biggest insurer, jumped 3.7 percent after it named a new chairman. Rhoen Klinikum AG slumped 8.9 percent after Fresenius SE failed in its 3.1 billion-euro bid to buy the company. Barclays gained 3.4 percent as Chairman Marcus Agius resigned after the bank was fined a record 290 million pounds for trying to rig inter-bank lending rates.
Factory output in the euro region contracted less than initially estimated in June, London-based Markit Economics said today, after Japan’s Tankan index of large manufacturers’ sentiment and China’s Purchasing Managers’ Index exceeded economist estimates.
Italy’s 10-year bond yield tumbled a third day, dropping eight basis points to 5.74 percent after earlier losing as much as 19 basis points. The rate on similar-maturity Spanish securities rose five basis points to 6.38 percent. German 10- year bond yields lost six basis points to 1.52 percent.
European leaders turn to the European Central Bank this week, seeking assistance following moves to calm markets and accelerate the currency bloc’s integration last week. The ECB may offer help on July 5, with economists expecting an interest rate cut. The bank has a track record of action following political progress, including bond purchases that followed bailout programs and unlimited three-year loans.
Finland said bond buying by the European Stability Mechanism on the secondary market would require unanimity, as the Nordic country reiterated its opposition to such purchases.
The Dollar Index, a gauge of the currency against six major peers, rose 0.3 percent as it rebounded from the biggest drop since October. The euro weakened against 15 of 16 major counterparts, losing 1 percent versus the yen. The jobless rate in the 17-nation area rose to 11.1 percent in May from 11 percent in April, the European Union’s statistics office said. That’s the highest since the data series started in 1995.
The MSCI Emerging Markets Index added 0.6 percent, extending its biggest gain in eight months on June 29, with gauges in Russia, Thailand and the Philippines climbing at least 1 percent.
The Shanghai Composite Index rose less than 0.1 percent. Hong Kong markets were closed for a public holiday. China’s PMI fell to 50.2 in June from 50.4 in May, the Beijing-based National Bureau of Statistics and China Federation of Logistics and Purchasing reported yesterday. That compares with the 49.9 median estimate in survey of 24 economists. A final PMI reading for June by HSBC Holdings Plc and Markit Economics today was better than a preliminary level published last month.