Treasuries and dollar react to today's news

Treasuries advanced and the dollar (NYBOT:DX) fell after the U.S. economy contracted the most in five years. U.S. stocks fluctuated, while European shares tumbled amid deepening crises in the Middle East and Ukraine.

The 10-year Treasury yield decreased four basis points to 2.54 percent at 10:07 a.m. in New York. The Standard & Poor’s 500 Index rose less than 0.1 percent. The Stoxx Europe 600 Index slumped 1.1 percent, the most since April, and the rate on gilts slid seven basis points to 2.67 percent. The Bloomberg Dollar Spot Index dropped 0.2 percent. Russia’s Micex retreated from an eight-month high and Indonesia’s rupiah slumped to a four-month low. Dubai’s benchmark index jumped 6.1 percent.

The U.S. economy shrank 2.9 percent in the first quarter, more than forecast and the worst reading since the same three months in 2009, the Commerce Department figures showed. Ukrainian President Petro Poroshenko called for immediate talks with Russia, Germany and France after pro-Russian rebels shot down a government helicopter. Sunni militants are consolidating their hold on a swath of Iraq and now threaten the integrity of the state, U.S. military and intelligence officials said.

The GDP report “could produce some volatility but not significant enough to derail where we are in the market,” Omar Aguilar, the San Francisco-based chief investment officer of equities at Charles Schwab Investment Management, said in a phone interview. The firm had $241 billion in assets under management as of Dec. 31.

The U.S. economy contracted in the first quarter by the most since the depths of the last recession as consumer spending cooled. The 2.9 percent decline followed a previously reported 1 percent drop, marking the biggest downward revision from the agency’s second GDP estimate since records began in 1976. The revision reflected a slowdown in health-care spending.

Fed outlook

Consumers returned to stores and car dealerships, companies placed more orders for equipment and manufacturing picked up as temperatures warmed, indicating the early-year setback was temporary. Combined with more job gains, such data underscore the view of Federal Reserve policy makers that the economy is improving and in less need of monetary stimulus.

Fed Chair Janet Yellen last week said accommodative monetary policy, rising property and equity prices and the improving global economy should lead to above-trend growth. Federal Reserve Bank of Philadelphia President Charles Plosser said yesterday he’s “fairly optimistic” economic growth will exceed 2.4.

Separate data today showed orders for U.S. business equipment climbed in May, showing corporate investment is helping revive the economy after a slump at the start of the year.

Monsanto Co. (NYSE:MON), the largest seed company, jumped 5.2 percent as it announced a $10 billion stock buyback plan to boost investor returns after ending preliminary talks about a takeover of Syngenta AG that would have cut its tax bill.

S&P record

The S&P 500 reached a record last week and is up 7.5 percent since a low on April 11 as data showed the economy is recovering from extreme weather. The index trades at 16.4 times the projected earnings of its members, close to its highest valuation in four years.

The Stoxx 600 fell for a fourth day, its longest losing streak in seven weeks, with trading volumes 37 percent above the 30-day average, according to data compiled by Bloomberg. All 19 industry groups in the Stoxx 600 dropped. The gauge closed down 1.2 percent from a six-year high yesterday.

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