Haven Trades Fade as Yen, Treasuries Erase Gains

EghtesadOnline: Investors shifted away from haven assets even as geopolitical concerns lingered, as stocks in Europe advanced while the yen and Treasuries erased gains.

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12 April 2017

European shares were bolstered as Daimler AG results lifted automakers. South Korean stocks and the won gained for the first time in seven days. Hong Kong equities erased losses to rally in late trading. The yield on 10-year U.S. notes rose after closing Tuesday below 2.3 percent for the first time in four months. Oil extended its longest winning streak since December. Japan’s Topix fell to the lowest level of the year after the yen breached 110 yen per dollar for the first time since November on Tuesday.

According to Bloomberg, volatility is easing after the VIX, Wall Street’s so-called fear gauge, climbed to a level unseen since November on Tuesday amid escalating global tensions. North Korea warned of a nuclear strike if provoked, while President Donald Trump said the U.S. would “solve the problem” with or without China. The U.S. separately said evidence clearly showed Syria was behind a chemical attack on civilians this month, and Secretary of State Rex Tillerson urged Russia to abandon its support of Syrian President Bashar al-Assad’s regime.

The concerns over Syria and North Korea come as traders are also coping with monetary tightening and the prospect of an unwinding central bank balance sheet in the world’s biggest economy. Chair Janet Yellen’s confirmed this week that the Federal Reserve has shifted gears from post-crisis healing to sustaining economic gains.

Here’s what investors are watching:

The U.S.-Russia relationship will be closely monitored as Tillerson visits Moscow. While he is set to meet with Russian Foreign Minister Sergei Lavrov on Wednesday, it’s not clear whether President Vladimir Putin will agree to see him amid the increasing tensions.

In central bank actions, Canada will probably hold its benchmark interest rate at 0.5 percent while Brazil will likely lower its key rate by a full percentage point, the biggest cut since 2009, as inflation has slowed by half in the last year.

IMF Managing Director Christine Lagarde speaks about the global economic outlook in Brussels.

Here are the main moves in markets:

Currencies

The yen fell less than 0.1 percent to 109.70 against the dollar as of 8:44 a.m. in London, erasing an earlier gain of 0.2 percent. The currency jumped 1.2 percent on Tuesday for the biggest increase since January.

The Bloomberg Dollar Spot Index fell 0.1 percent. The South Korean won rose 0.4 percent, after six days of declines.

The euro added 0.1 percent to $1.0620, gaining for a third day.

Stocks

The Stoxx Europe 600 rose 0.6 percent, with automakers leading gains as Daimler AG’s first-quarter profit almost doubled. Daimler shares rose 1.6 percent.

Korea’s Kospi rose 0.2 percent, after dropping 2 percent over the previous six sessions. Japan’s Topix fell 1 percent, led by declines in banks, autos and other exporters. South Australia’s S&P/ASX 200 index gained less than 0.1 percent.

The Hang Seng China Enterprises Index climbed 0.3 percent and the Hang Seng Index jumped 0.6 percent, wiping out earlier losses at the end of the trading day. The Shanghai Composite fell 0.5 percent. Data showed China’s producer price gains slowed last month from a peak in February, tempering the global inflation outlook.

Futures on the S&P 500 climbed 0.2 percent, reversing an earlier loss. The benchmark gauge finished 0.1 percent lower on Tuesday.

Bonds

The yield on 10-year Treasuries rose one basis point to 2.31 percent, erasing earlier declines. The rate dropped seven basis points on Tuesday.

Australian 10-year yields slipped three basis points to 2.50 percent.

Commodities

Oil climbed 0.4 percent to $53.61 a barrel, after advancing for six straight sessions. Saudi Arabia is likely to support extending OPEC output cuts into the second half of 2017 in an effort to boost oil prices, according to a person familiar with the kingdom’s internal discussions.

Gold fell 0.1 percent to $1,273.70 an ounce, after jumping 1.6 percent on Tuesday to the highest since Nov. 9.