Stocks, oil slide as global growth concerns persist; Bonds rise

BLOOMBERG

U.S. stocks joined a slump in global equities, the dollar fell and Treasuries climbed as lackluster manufacturing data from Asia to Europe rekindled worldwide growth concerns and sent the odds for higher interest rates tumbling.
The S&P 500 Index fell a second day, paring losses after data showed U.S. manufacturing unexpectedly expanded at a faster pace last month. The Stoxx Europe 600 Index headed for its biggest drop in a month and the MSCI Asia Pacific Index halted a five-day winning streak. The dollar slipped after its best month in almost two years. Crude oil fell toward $48 a barrel before an OPEC meeting on Thursday. The pound weakened for a second day on speculation a vote for Brexit is becoming more likely. Treasury 10-year yields lost four basis points.
The odds for a Federal Reserve rate increase at its meeting in two weeks tumbled to 18 percent from 34 percent last week amid evidence growth remains subdued in the world’s largest economies. China’s official manufacturing reading for May was just above the dividing line between improvement and deterioration, while a Markit Economics gauge for the euro area slipped. A comparable indicator for Japan was the lowest in at least three years.
“The recovery in Europe is not accelerating and we have a very, very heavy week for data and events still ahead of us, so you can forgive people for a wait-and-see mood,” said William Hobbs, head of Europe, Middle East and Africa investment strategy at the wealth-management unit of Barclays Plc in London. “Markets are trapped a little bit, people are worried about geopolitics and the British referendum.”
The global economy is slipping into a self-fulfilling “low-growth trap,” the Organisation for Economic Cooperation and Development warned. Polls showing an increased risk that the U.K. will vote to leave the European Union in a June referendum are also making investors wary ahead of Thursday’s European Central Bank meeting.

Stocks
The S&P 500 declined 0.5 percent at 10:02 a.m. in New York, after the index posted its third straight monthly gain
“Given where the market is, bumping up against the highs from April and November last year, people are looking for reasons to take profits and not try to play the market,” Chuck Self, chief investment officer of iSectors LLC, said by phone. “If the May numbers are not that strong, it not only affects the Fed, but it also affects how people look at the second quarter.”
After the U.S. manufacturing data, a payroll report on Friday will be parsed for clues as to whether the world’s biggest economy can cope with a potential rate increase this month or next. Reports Tuesday showed U.S. consumer spending climbed in April by the most in almost seven years, while confidence fell.
The Stoxx Europe 600 Index lost 1.3 percent, on course for the biggest drop since May 3. Mining-related companies fell the most of its 19 industry groups as commodity prices retreated.
The MSCI Emerging Markets Index was little changed, as were Chinese equity benchmarks in Hong Kong and Shanghai, while gauges in the Philippines, Indonesia and Taiwan climbed at least 0.7 percent. Japan’s Topix index slid 1.3 percent.

Currencies
The Bloomberg Dollar Spot Index declined 0.5 percent, after a 3.7 percent surge in May that marked its biggest monthly gain since September 2014. The odds of the Fed raising rates in June dropped to 18 percent Wednesday after rising to as much as 34 percent last month.
The euro advanced 0.2 percent versus the greenback before a European Central Bank policy meeting on Thursday. The yen strengthened 1.3 percent as Prime Minister Abe told lawmakers he will “mobilize fiscal policy to achieve strong growth.” That’s the biggest gain since April 29.
The pound declined 0.3 percent to $1.4444 after dropping 1.1 percent on Tuesday, when ICM opinion polls released by the Guardian showed a lead for the campaign to take Britain out of the EU. A gauge of the pound’s one-month volatility versus the dollar climbed to 20 percent on Wednesday, the highest since 2009.

Commodities
The Bloomberg Commodity Index slid 0.5 percent, falling for a second day.
Oil declined for a fourth day on concern recent gains were unsustainable, while shuttered Canadian operations started to reopen. West Texas Intermediate crude fell 1.3 percent to $48.44 a barrel, after climbing for a fourth month in May. Oil has surged about 85 percent since touching a 12-year low in February on signs the global surplus is easing.
The Organization of Petroleum Exporting Countries is unlikely to reach an agreement limiting production at this week’s meeting in Vienna as the group sticks with Saudi Arabia’s strategy of squeezing out rivals, according to analysts surveyed by Bloomberg.
Gold held the first advance in 10 days as investors looked to the release of U.S. data this week including monthly payrolls. Copper declined 1.7 percent in London, while zinc, lead and tin were down at least 0.6 percent.

Bonds
Treasury 10-year notes eked out gains for a second day, with the yield falling three basis points to 1.82 percent. The notes were little changed in May.
Investors are putting record amounts of money into exchange-traded funds as bonds become increasingly difficult to buy and sell. Global fixed-income ETFs, which track bond indexes and trade like stocks, attracted $60 billion of inflows this year through May 25, according to data compiled by BlackRock Inc.
German government bonds rose for a second day as the nation auctioned five-year notes at a record-low yield. Germany sold debt due in April 2021 at an average yield of minus 0.38 percent, the lowest since Bloomberg started tracking the auctions in 1993.
Japan’s 20-year bonds declined, pushing their yield up by one basis point to 0.255 percent, after the central bank scaled back purchases of super-long tenors in its debt-buying plan for this month. Notes due in 30 years and 40 years also declined.