Stocks Take Cues From Bonds as Investors Await Policy Signals
July 11 2017 - 9:18AM
Dow Jones News
By Riva Gold and Kenan Machado
-- German government bond yields near 18-month high
-- Tech rally leads Asian markets higher; European shares edge down
-- Federal Reserve, Bank of England speeches in focus
European shares and U.S. stock futures struggled Tuesday while
government bonds faced renewed pressure ahead of fresh cues from
central bank officials.
Futures pointed to a 0.1% opening loss for the S&P 500, on
track to reverse Monday's modest advance. In premarket trading,
shares of Citrix Systems fell 3.6% after the software company
announced its chief executive stepped down, while PepsiCo rose 0.4%
after it reported a rise in second-quarter sales and earnings.
Asian markets closed higher amid a rebound in technology shares,
but the Stoxx Europe 600 edged down 0.4% in afternoon trading as
U.K. companies led declines. Shares of Pearson fell 5.4% after the
education publisher reduced its stake in book publisher Penguin
Random House, while Marks & Spencer shares fell 4.8% after the
British food and clothing retailer reported lower sales. The wider
FTSE 100 index fell 0.9%, also hurt by a modest rise in the British
pound.
A fresh climb in government bond yields meanwhile pressured
shares of steady income-paying companies in Europe, which tend to
perform best in a low-yield environment. The real estate,
health-care and food and beverage sectors dragged down the Stoxx
Europe 600, while autos, miners and banks -- sectors that tend to
be most geared to economic growth and higher government bond yields
-- outperformed.
Government bond yields rose Tuesday despite a fall in oil prices
after Federal Reserve Bank of San Francisco President John Williams
stuck to his view that the U.S. economy was healthy enough to raise
interest rates one more time this year and for the central bank to
start trimming its balance sheet.
Yields on 10-year Treasurys rose to 2.386% from 2.371% on
Monday, while 10-year German bond yields briefly climbed to as high
as 0.572%, around their highest since around the start of 2016,
from 0.539% on Monday. Yields move inversely to prices.
"There has a been a marked shift in the language from central
banks," said Ryan Myerberg, portfolio manager at Janus Henderson.
"We can see the powerful force keeping rates so low for so long is
being unwound, but what it means for the near term is up for
debate," he said, noting upcoming inflation readings, including
Friday's U.S. consumer prices data, will be key for the direction
of yields.
Central bankers around the world are scheduled to appear this
week including the European Central Bank's Benoît Cœuré, the Bank
of England's Chief Economist Andrew Haldane and Deputy Governor Ben
Broadbent, and Fed Gov. Lael Brainard on Tuesday.
That's ahead of Chairwoman Janet Yellen's testimony to
congressional committees on Wednesday and Thursday, while the Bank
of Canada is also widely expected to raise its benchmark policy
rate on Wednesday for the first time in seven years as central
banks continue to dominate investor focus.
Earlier, Asian markets mostly climbed in low-volume trading as
technology companies echoed gains in U.S. tech stocks on
Monday.
Taiwan's Taiex index was up 1.2%, with iPhone lens maker Largan
Precision adding 3.8% and fellow Apple suppliers Hon Hai Precision
and Taiwan Semiconductor gaining 2.6% and 2.9%, respectively.
In Japan, index heavyweight and tech investor SoftBank gained
2%, while the benchmark Nikkei Stock Average gained 0.6% as a
weaker yen, which benefits export-oriented stocks, also provided
support. The dollar was last up 0.3% against the yen.
Hong Kong's Hang Seng Index gained 1.5% as shares of Chinese
developer Sunac China surged 14% as trading resumed Tuesday, after
the company unveiled plans to buy hotel and theme-park assets from
Dalian Wanda for $9.3 billion.
In commodities, Brent crude oil was last down 0.9% at $46.47 a
barrel, building on losses of about 17% in the past three
months.
"Earnings are good right now -- the question is are they going
to be good in 2018, and energy will probably have a lot to do with
overall earnings growth," said Doug Foreman, chief investment
officer of Kayne Anderson Rudnick Investment Management.
While the energy sector represents just 6% of the S&P 500,
there are many companies across the industrials and materials
sectors that do business with the energy patch and whose earnings
rely on a stabilization in the oil price, he said.
James Glynn,
Philip Waller
and Joanne Chiu contributed to this article.
Write to Riva Gold at riva.gold@wsj.com and Kenan Machado at
kenan.machado@wsj.com
(END) Dow Jones Newswires
July 11, 2017 09:03 ET (13:03 GMT)
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