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Business News/ Market / Stock-market-news/  Treasuries advance with gold as dollar slips on weak wage data
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Treasuries advance with gold as dollar slips on weak wage data

Wages and salaries in the US rose in the second quarter at the slowest pace on record

Exxon Mobil had its worst quarter in six years. Photo: ReutersPremium
Exxon Mobil had its worst quarter in six years. Photo: Reuters

New York: Treasuries rose, gold erased a loss and the dollar slipped on speculation that slow United States wage growth will temper Federal Reserve plans for higher interest rates. US stocks fell on corporate earnings and oil tumbled.

Yields on 10-year Treasuries fell to a three-week low at 4 pm in New York on Friday. Gold jumped after an earlier decline of as much as 0.9%. The Bloomberg Dollar Spot Index lost 0.2%, paring an earlier drop of 1%. The Standard & Poor’s 500 Index fell 0.2% as Exxon Mobil Corp. and Chevron Corp. tumbled. Oil fell to the lowest since March as commodities capped the biggest monthly drop in four years.

“This came as a pretty big stunner for the markets," said Robert Sinche, a strategist at Amherst Pierpont Securities LLC in Stamford, Connecticut. “The dovish wing of the Fed is going to latch onto this wage data pretty aggressively."

Wages and salaries in the US rose in the second quarter at the slowest pace on record, dashing projections that an improving labor market would boost pay. Fed chair Janet Yellen and her colleagues are counting on rising wages to boost the economy and bring inflation closer to their 2% goal. The setback may prompt some officials to call for a delay in raising interest rates for the first time since 2006.

“It makes it that much tougher for the Fed to raise rates when you have no wage growth," Bruce Bittles, chief investment strategist at Milwaukee-based Robert W. Baird & Co., which oversees $110 billion, said by phone. “In a market that’s trading in such a tight trading range, investors are taking any piece of material that comes out as potentially being important to changing the character of the market."

Rate timing

While central bank officials said Wednesday in their latest policy statement that the labor market and housing have improved, they didn’t provide a clear signal on the timing for higher rates. Market speculation has focused on a move as soon as September.

Benchmark 10-year Treasury notes had the first monthly gain since March. Their yield dropped 7 basis points to 2.19% on Friday. Traders are pricing in a 38% probability that the Fed raises rates at the September meeting. That compares with 46% Thursday.

Gold gained for the first time in four days. The metal fell to a five-year low last week on speculation that interest rates may rise as early as September, curbing the appeal of gold because it doesn’t pay interest.

Oil, commodities

Oil capped its biggest monthly drop in almost seven years on speculation that increased OPEC supplies and threats to demand in China will prolong a global glut. Futures slid 2.9% in New York, bringing the slide for July to 21%. US crude stockpiles are almost 100 million barrels above the five-year seasonal average, while exports from southern Iraq rose to a record this month.

The Bloomberg Commodity Index retreated 11% in July, the most since September 2011, after sinking to a 13-year low this week.

Commodities are falling out of favor with investors as demand in China, the biggest user of everything from metals to energy, is faltering amid expanding inventories of copper and oil. The Fed’s move toward higher rates is boosting the dollar and curbing the appeal of raw materials as they become more expensive for holders of other currencies.

Zinc fell into a bear market Friday, joining other commodities that have fallen more than 20% from a peak, including aluminium and lead.

Dollar fades

The Bloomberg Dollar Spot index, which tracks the greenback versus 10 of its major peers, wiped out this week’s gains on the wage report. The rally, which sent the index to the highest level since data going back to 2004, had stemmed from he Fed meeting and from a report Thursday showing the world’s biggest economy gained momentum in the second quarter. The S&P 500 has risen 2% in July, its best monthly advance since February, after dropping 2.1% in June. Shares rallied on Tuesday and Wednesday to end the index’s longest losing streak since January. The index had fallen 2.9% over a five- session stretch amid concerns about growth in China and some corporate earnings disappointments.

About two-thirds of the S&P 500 companies have reported earnings this season, with 74% beating profit estimates and half of them topping sales projections. Analysts expect a 2.8% drop in second-quarter earnings, shallower than 10 July calls for a 6.4% fall.

Exxon Mobil had its worst quarter in six years, and Chevron posted its lowest profit in more than 12 years, sending shares down at least 4.5% on Friday. Energy shares in the S&P 500 lost 2.6%, the worst performance since 28 January.

LinkedIn Corp. tumbled 11% amid concerns growth is slowing in its main business. Expedia Inc. jumped 13% and Amgen Inc. added 2.9% as results beat estimates.

European stocks were little changed amid earnings reports, completing their biggest monthly rally since February. The Stoxx Europe 600 Index gained 4% in July, rebounding from a low as concern faded that Greece will leave the euro. The Athens Stock Exchange will reopen on 3 August after five weeks of shutdown. BLOOMBERG

With assistance from Emma O’Brien in Wellington, Cecile Vannucci, Lynn Thomasson, Paul Dobson, Whitney McFerron and Stephen Kirkland in London, Netty Ismail in Singapore and Michelle Jamrisko in Washington.

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Published: 01 Aug 2015, 07:10 PM IST
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