Sharply lower bond yields, an easing of the Chinese liquidity squeeze and the promise of continued monetary accommodation in Europe helped raised stock prices globally Wednesday despite a steep downward revision in U.S. GDP growth. Both the Dow and the S&P rose 1% while NASDAQ gained 0.9%. The Dow rose 150 points, its 11th move of 100 or more points (5 up and 6 down) in the past 12 sessions. The yield on the 10-year Treasury note dropped seven basis points to 2.54%. But gold continued to plummet, falling more than 4%, or about $50, to about $1225 an ounce, its lowest level since August of 2010. The metal is down more than 23% since the beginning of April. Silver dropped 5%.
First quarter GDP growth was revised downward to 1.8% from 2.4% previously, well below the Street forecast of no change. The bond market took the final Commerce Department report as evidence of a continued weak economy and possibly as justification for lower rates, while stock investors may have been pleased that yields came down. Lackluster growth does make it less likely the Fed would pull the plug on its asset-purchase program, which many see as a positive for stock prices. Jeffrey Lacker, president of the Richmond Fed, told Bloomberg television that he expects growth to remain “sluggish” for “a couple more years” and that the Fed is “not anywhere near decreasing [its] balance sheet yet.” The downward revision in GDP was due largely to softer personal consumption expenditures, which rose at a 2.6% annual growth rate and not the 3.4% reported last month. In addition, the estimate of nonresidential fixed investment, or capex, was cut to 0.4% growth, down from a 2.2% gain in the earlier report.
European bond yields, which have been rising sharply the past two weeks, retreated on Wednesday while stock prices rose sharply. Yields on 10-year Spanish government bonds dropped more than 20 basis points while yields on Italian bonds fell 16 bps. German bund yields fell four bps. That helped boost stock prices more than 2% in Spain, France and Italy and by 1.7% in Germany. European Central Bank President Mario Draghi said the ECB’s monetary policy “will stay accommodative for the foreseeable future,” adding that an exit “is still distant.” However, he warned that “monetary policy cannot create real economic growth; this is beyond the power of the central bank to fix.” The euro was weaker, falling 0.5% to about $1.30, its lowest level this month.
Asian markets were mixed but Hong Kong stocks were higher after the People’s Bank of China said it is selectively injecting funds into banks to ease a liquidity squeeze. The Hang Seng index rose 2.4% but other major indexes were lower. The Nikkei fell 1% while Shanghai and India both fell 0.4%.
Reports/dates/facts/links worth paying attention to over the next week:
- June 27: Personal income and outlays for May; weekly unemployment claims; National Association of Realtors pending home sales index for May.
- June 28: Chicago PMI for June; University of Michigan consumer sentiment index for June, second reading.
Copyright © 2013 by Wright Investors’ Service, Inc. The views expressed in this blog reflect those of Wright Investors’ Service, Inc. and are subject to change. Statements and opinions therein are based on sources of information believed to be accurate and reliable, but Wright Investors’ Service, Inc. makes no representations or guarantees as to the accuracy or completeness thereof. These views should not be relied upon as investment advice.