Treasuries drop on home data

Treasuries fell right  after this morning's report showing housing starts rose more than forecast. India’s rupee strengthened for a third day on election results.

The S&P 500 (CME:SPM14) fell 0.1 percent at 9:35 a.m. in New York, after sliding 0.9 percent yesterday. The Russell 2000 Index slid 0.3 percent. The Stoxx Europe 600 Index dropped 0.1 percent, after losing as much as 0.6 percent earlier. Yields on 10-year Treasuries rose three basis points to 2.52 percent. The rupee gained 0.6 percent against the dollar as results showed Narendra Modi’s main opposition bloc will take power. Nickel climbed 2.7 percent.

The pace of U.S. home construction jumped in April to its highest level since November, Commerce Department figures showed today. Stocks retreated yesterday and bonds rose after reports showed an unexpected drop in U.S. industrial production and less-than-forecast growth in the euro-area economy.

“You came into the year with high hopes for growth in the economy, and data since the beginning of the year has been quite mixed,” Kevin Caron, a Florham Park, New Jersey-based market strategist at Stifel Nicolaus & Co., which manages about $160 billion, said in a phone interview. “The real question is what’s the next catalyst that drives us from here. The market’s had trouble finding it.”

The S&P 500 has dropped 0.4 percent this week, heading for its first back-to-back weekly loss since January, while the Russell 2000 Index of small-cap stocks has lost 1.1 percent. The S&P 500 is still 3 percent up from a low on April 11, climbing this week to a record 1,897.45.

 

Housing Starts

Housing starts climbed 13.2 percent to a 1.07 million annualized rate following March’s 947,000 pace, the Commerce Department reported today in Washington. Starts exceeded all analysts’ forecasts, with the median estimate of 79 economists surveyed by Bloomberg calling for 980,000. Permits for future projects increased, a sign activity might accelerate in coming months.

A separate release at 9:55 a.m. may show that consumer confidence rose this month after reaching a nine-month high in April. The preliminary reading of the Thomson Reuters/University of Michigan index of sentiment increased to 84.5 from 84.1, economists surveyed by Bloomberg said.

Federal Reserve Chair Janet Yellen said the U.S. economy has further to go to achieve full health and predicted small businesses will play a vital role in the recovery.

Job creation is “crucial to this process,” and small companies “are responsible for a large share” of new employment, Yellen said yesterday in Washington.

 

Fed Stimulus

Fed policy makers said last month the economy is showing signs of picking up and the job market is improving. The central bank pared its monthly asset-buying and said further reductions in “measured steps” are likely. Interest rates will probably remain low until mid-2015.

Three rounds of monetary stimulus have helped fuel economic growth, sending the S&P 500 surging as much as 180 percent from its 2009 low.

The Stoxx 600 slipped 0.9 percent yesterday and is little changed on the week. Banco Espirito Santo SA tumbled 6.6 percent after the Portuguese lender reported a wider first-quarter loss than a year earlier and said it will issue new shares. Bouygues SA gained 4.3 percent after a report that Orange SA has studied buying Bouygues Telecom and after reporting that quarterly revenue beat analysts’ estimates.

China’s small-company stocks fell, dragging the benchmark index down more than 20 percent from its February peak, on concern valuations are too high as the economy slows and new share offerings divert funds. The ChiNext index lost 2.2 percent today in Shenzhen, set to close in a bear market.

 

India Elections

The rupee strengthened as much as 1.1 percent, touching an 11-month high against the dollar. The Bharatiya Janata Party and its allies were leading in 335 of 543 seats up for grabs, more than the 272 needed for a majority. Rahul Gandhi, who led the Congress campaign, conceded defeat with his bloc leading in 59 seats.

Russia’s ruble was little changed and Ukraine’s hryvnia declined 1.3 percent.

 

Ukraine Offensive

Ukraine continued its offensive against separatists in the east, as the U.S. and U.K. warned Russia against undermining the former Soviet republic’s upcoming election. Russia is the world’s largest energy exporter and producer of palladium. It is No. 2 for refined nickel production and the fifth-largest producer of wheat, followed by Ukraine.

Portugal’s bonds extended a selloff from yesterday, with the 10-year yield climbing seven basis points to 3.77 percent, the highest since April 29.

Nickel rose for the first time in three days, narrowing this week’s decline to 3.7 percent after rallying 9 percent last week. Indonesia banned ore exports in January. U.K. natural gas fell as much as 1.4 percent to the lowest since September 2010. The high in London on May 19 will be 22 degrees Celsius (72 degrees Fahrenheit), above the five-year average of 16 degrees, according to CustomWeather.

The yen was little changed at 101.55 per dollar after appreciating to 101.32 yesterday, the strongest since March 19, and was at 139.32 per euro. The euro rose 0.1 percent to $1.3718.

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