U.S. Treasuries rally as stocks decline with dollar

Treasuries climbed and stocks fell as investors assessed the latest news on trade talks and awaited more clues on monetary policy.

Benchmark 10-year yields slumped after U.S. Secretary of State Michael Pompeo told CNBC that Huawei Technologies Co. isn’t the only Chinese company that poses risks. He also sees the U.S. and China continuing their talks -- at least by phone -- over the next week or 10 days. The S&P 500 Index halted a three-day rally and the dollar dropped from this year’s high. Italian bonds jumped as Prime Minister Giuseppe Conte said he’ll hand his resignation.

Just a day after markets cheered progress on trade negotiations, investors took a more cautious approach. President Donald Trump’s top economic adviser, Larry Kudlow, speaks with business leaders this week amid concerns about a recession, the trade war and whipsawing markets. Pacific Investment Management Co. has reduced its positions in government debt on bets that a breakthrough in U.S.-China trade talks could trigger a violent sell-off, the Financial Times reported. Traders are also gearing up for a keynote speech from Federal Reserve Chairman Jerome Powell in Jackson Hole on Friday.

“It’s kind of a choppy environment,” Dan Skelly, head of equity model portfolios at Morgan Stanley Wealth Management, said in a phone interview. “The liquidity in August is going to be pretty poor, so that certainly in my view caps the potential upside, but it does raise the risk that you do have a more pronounced sell-off at some point.”

Wall Street watchdogs rolled out a long-anticipated overhaul of the Volcker Rule that eases its controversial restriction on banks making speculative investments, wrapping up a top de-regulatory goal of officials appointed by Trump. Bank stocks joined losses in the broader market.

In corporate news, Home Depot Inc. surged after its results broadly cleared investor expectations -- or at least, were no worse than expected by Wall Street. Beyond Meat Inc. jumped after JPMorgan upgraded the stock to overweight from neutral. Baidu Inc. soared after the China-based Internet company unexpectedly reported revenue growth in its June quarter. Kohl’s Corp. fell on sales that fell short of expectations.

Here are some notable events coming up:

• Minutes of the Fed’s July meeting will provide details on the discussions leading to the first interest-rate cut in a decade when they are released on Wednesday.
• Thursday brings the Bank Indonesia rate decision and press conference with Governor Perry Warjiyo.
• Flash PMIs are due for the euro area on Thursday.
• Kansas City Federal Reserve Bank hosts its annual central banking symposium in Jackson Hole, Wyoming, starting Thursday. Fed Chairman Jerome Powell will give remarks on Friday.

Here are the main moves in markets:

Stocks

• The S&P 500 fell 0.2 per cent to 2,918.24 as of 1:18 p.m. New York time.
• The Stoxx Europe 600 Index dipped 0.7 per cent.
• The MSCI Asia Pacific Index climbed 0.6 per cent.

Currencies

• The Bloomberg Dollar Spot Index declined 0.2 per cent.
• The euro rose 0.2 per cent to US$1.11.
• The Japanese yen increased 0.3 per cent to 106.31 per dollar.

Bonds

• The yield on 10-year Treasuries declined five basis points to 1.55 per cent.
• Germany’s 10-year yield decreased four basis points to -0.69 per cent.
• Britain’s 10-year yield fell two basis points to 0.452 per cent.

Commodities

• The Bloomberg Commodity Index decreased 0.1 per cent.
• West Texas Intermediate crude dipped 0.3 per cent to US$56.04 a barrel.
• Gold climbed 0.2 per cent to US$1,515.10 an ounce.