Market yields hinged on Ukraine

U.S. equity-index futures gained as jobless claims fell and earnings from 21st Century Fox Inc. and CenturyLink Inc. beat estimates. Bonds rose as the European Central Bank kept interest rates on hold, while Australia’s dollar led a decline in higher-yielding currencies.

Standard & Poor’s 500 Index (CME:SPU14) futures advanced 0.4% at 8:40 a.m. in New York. The Stoxx Europe 600 Index slipped less than 0.1%. Germany’s two-year yield was at 0.004% after touching minus 0.004%. The 10-year yield slid to a record 1.078%. The Aussie weakened 0.9% against the dollar after the unemployment rate rose to a 12-year high. Russia’s ruble (CME:R6U14) dropped 0.5%.

The decline in jobless claims last week sent the average over the past month to an eight-year low. European Central Bank President Mario Draghi said rates will stay at the present level for an extended time after policy makers left their benchmark interest rate at 0.15% and deposit facility rate at minus 0.1%. German industrial output grew less than forecast in June, adding to evidence that the conflict in Ukraine and sanctions against Russia are undermining the recovery.

“The fundamentals have deteriorated in Europe,” said Allan von Mehren, chief analyst at Danske Bank A/S in Copenhagen. “Markets are maybe even starting to price in that some time down the road we could see more easing from the ECB. Yields could stay negative if Ukraine continues to escalate.”

A negative yield means investors who hold the German two-year notes until they mature will receive less than they paid to buy them.

The U.S. joined NATO and Poland in warning there’s a risk President Vladimir Putin could send troops into Ukraine, and Russia hit back at the sanctions.
 

Bonds Rally
 

Jobless claims decreased by 14,000 to 289,000 in the week ended Aug. 2 from 303,000 in the prior period, a Labor Department report showed today. The median forecast of 47 economists surveyed by Bloomberg called for an increase to 304,000.

Bond-market gains sent yields on 10-year securities to record lows in Austria, Finland and the Netherlands, while the rate on U.K. gilts dropped below 2.5% for the first time in almost a year. The pound (CME:B6U14) was little changed at $1.6848 after the Bank of England left its benchmark interest rate at 0.5% and maintained its asset-purchasing plan.

Treasuries rose, with 10-year yields (CBOT:ZNU14) declining one basis point to 2.46%.

Australian 10-year government debt paid 3.42%, down nine basis points. The Aussie dollar (CME:A6U14) weakened at least 0.6% against 31 major currencies. The country’s unemployment rate unexpectedly climbed in July to the highest since August 2002 as joblessness increased along the nation’s eastern seaboard, increasing the likelihood interest rates will remain at a record low for an extended period.

The dollar (NYBOT:DXU14) strengthened against most of its 31 major peers and the Bloomberg Dollar Spot Index added 0.1%.

Twelve of the 19 industry groups in the Stoxx 600 advanced, with trading volume 15% greater than the 30-day average, according to data compiled by Bloomberg.
 

Commerzbank Gains
 

Commerzbank AG added 2.6% after Germany’s second- biggest bank said second-quarter profit more than doubled as it shed unwanted assets. Nestle SA rose 3% after the world’s largest food company announced plans for a share buyback as first-half revenue growth exceeded analysts’ estimates. Zurich Insurance Group AG gained 3.2% after Switzerland’s biggest insurer reported that quarterly profit climbed 6% as it took fewer losses from natural catastrophes.

Adidas AG lost 3.7% after the world’s No. 2 sports- gear maker cut its 2014 profitability forecast. Munich Re slipped 1.6% after the world’s biggest reinsurer posted earnings that missed analyst estimates. Beiersdorf AG, the maker of Nivea cream, slid 3.3% after first-half sales growth that fell short of analysts’ projections. Old Mutual Plc declined 2.4% after Africa’s largest insurer said profit in the first six months dropped 5% as the rand weakened.
 

Emerging Markets
 

The MSCI Emerging Markets Index lost 0.4%, poised for the lowest close since July 1. The Shanghai Composite Index sank 1.3%, the most in more than a month, before tomorrow’s trade data. The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong retreated 0.9%, its third day of declines.

Russia’s Micex fell 1.5% to a three-month low as retailers dropped on concern a ban on food imports from sanctioning countries will cut earnings. OAO Magnit, the nation’s largest food retailer, slumped 4.8%.

Putin yesterday ordered restrictions on food and agricultural imports for one year from countries that have imposed or supported sanctions against Russia, according to the Kremlin website.

African Bank Investments Ltd., South Africa’s largest provider of unsecured loans, plunged to the lowest in almost two decades after saying it expects a record loss and will need to tap investors for $791 million. The shares dropped 74%, extending yesterday’s 61% slide.
 

Rand Slides
 

South Africa’s rand slid 0.2% against the dollar before a report that will probably show manufacturing shrank in June, according to the median of 12 estimates in a Bloomberg survey of economist.

The Philippine peso weakened 0.7%. The World Bank cut the country’s 2014 growth forecast to 6.4% from the previous forecast of 6.6%.

The Bloomberg Commodity Index of 22 raw materials fell 0.1% after gaining 0.8% yesterday. Lean hogs dropped 1%, zinc fell 0.9% and wheat declined 0.6%.

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