Treasuries rally, pound drops on BOE as stocks mixed before jobs

Bloomberg

Treasuries joined a rally in global bonds and the pound slid against its major peers as the Bank of England cut its key rate for the first time in more than seven years. U.S. stocks and the dollar traded in tight ranges as investors awaited Friday’s job report.
Sovereign debt from the UK to Germany and American advanced after the BOE delivered “exceptional” stimulus to stave off the effects of Brexit. Sterling fell the most in three weeks, while credit markets strengthened. The S&P 500 churned about 1 percent below an all-time high, while the dollar was confined to its narrowest band in more than a week. Crude held near $40 a barrel.
The BOE cut growth forecasts by the most ever as policy makers unveiled a stimulus package aimed at containing the fallout from the U.K.’s secession vote. While the pound retreated, assets from the dollar to equities showed little reaction to the widely expected move, with investors turning attention to Friday’s report expected to show continued improvement in the U.S. labor market.
“Tomorrow’s employment number is the catalyst for the market. That’s what is going to rule the pricing trends over the next few weeks,” said Jim Davis, regional investment manager at the Private Client Reserve of US Bank, which oversees $128 billion. “We really need to see some economic growth in order to have more assurance that we’re going to have growing earnings in the second half of the year.”

Stocks
The S&P 500 fell 0.1 percent to 2,161.80 at 10:04 a.m. in New York. U.S. equities snapped a two-day retreat yesterday as a rise in crude boosted energy producers, while corporate earnings buoyed financial companies. The index has hovered near a record in the past few weeks, and is trading at 18.4 times the projected earnings of its members, close to its highest in more than a decade.
Investors are looking for clear signs of economic progress after data last week showed expansion was slower than anticipated in the second quarter, and will look to data on factory orders due Thursday for clues on the strength of the US economy, after a reading on jobless claims came in higher than forecast. The Stoxx 600 advanced 0.5 percent in London, after falling 1.9 percent in the first three days of the week. A gauge of lenders jumped 1.3 percent, for the best performance among the benchmark index’s 19 industry groups. The U.K.’s FTSE 100 Index soared 1.3 percent.
The MSCI Emerging Markets Index climbed 0.8 percent, after sliding 1.6 percent in the previous two days. Benchmarks in Russia, Dubai and the Philippines gained at least 0.8 percent. The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong rose 0.3 percent, rebounding from the biggest drop in four weeks.
Currencies
The pound fell 1.4 percent to $1.3136, the steepest decline since July 15. Sterling weakened 1 percent to 84.83 pence per euro. The BOE also increased its asset-purchase target for the first time in four years, raising it by 60 billion pounds to 435 billion pounds.
The Bloomberg Dollar Spot Index, a gauge of the greenback against 10 major peers, was up 0.1 percent after rising 0.3 percent on Wednesday, when emerging-market currencies led declines.
Chicago Federal Reserve President Charles Evans told reporters Wednesday that a U.S. rate hike “could be appropriate this year.” Odds on the Fed boosting benchmark borrowing costs in 2016 have dropped to 39 percent, with last week’s GDP report damping prospects for tightening.
The yen was little changed at 101.3 per dollar, after Wednesday’s 0.4 percent slide. Japan’s currency has gained about 0.7 percent this week, as traders weigh the BOJ’s decision last Friday to only bolster purchases of exchange-traded funds, as well as a fiscal package flagged Tuesday by Prime Minister Shinzo Abe.
South Africa’s rand jumped 1.3 percent, the most among major currencies, as early results in local elections showed the ruling party trailing the main opposition group in several major cities while leading the overall vote.

Bonds
Yields on 10-year gilts fell as much as 17 basis points to a record low 0.634 percent, while those on 30-year debt slid as low as 1.468 percent.
Treasuries rose, with yields on notes due in a decade down three basis points to 1.51 percent. Ten-year rates jumped at the start of this week, as the record-setting rally in global bonds appeared to falter. Yields on German 10-year bunds lost four basis points to minus 0.08
percent.