Bonds Fall on Fed Outlook as U.S Stocks Fluctuate; Crude Climbs – Bloomberg

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Bonds fell as the Federal Reserve seems intent to raise interest rates this summer amid signs inflation is picking up, while oil headed for its longest run of monthly gains in five years and stocks in the U.S. were little changed.

Treasuries retreated in the first full day of trading since Fed Chair Janet Yellen said late Friday that the improving economy meant a rate increase would probably be in order “in the coming months.” The S&P 500 Index headed for a third monthly gain, and European shares dropped for the first time in six days. In China, stocks climbed even after a flash crash in index futures, with the Shanghai gauge jumping the most in almost three months. Gold rose for the first time in 10 days.

The Fed’s rate outlook is occupying investors as futures show odds of a hike in July at more than 50 percent while gains in commodity prices from crude to crops bolster prospects for inflation. With officials emphasizing policy tightening is dependent on economic improvement, a report today showed U.S. consumer spending climbed in April by the most in almost seven years. Key payrolls figures are due Friday

“That we’re seeing a positive market reaction to positive economic data, and we’re not seeing concern about the associated rate increase is a good sign,” said Peter Jankovskis, who helps oversee $1.9 billion as co-chief investment officer of Lisle, Illinois-based OakBrook Investments. “This is an indication that investors are looking at it as an affirmation rather than just dreading what the Fed will do.”

The potential for higher U.S. yields helped send a gauge of the dollar versus major peers to its biggest monthly gain since September 2014. Consumer spending climbed 1 percent in April, the most in almost seven years, Commerce Department figures showed on Tuesday. U.S. employers probably added 160,000 jobs in May and average hourly earnings grew at a 2.5 percent annual pace, economists said before a Labor Department report on Friday.

Bonds

Treasuries declined, sending the yield on benchmark 10-year notes up by four basis points to 1.89 percent at 9:31 a.m. in New York. U.S. government securities stagnated for a second month in May, leaving them little changed for the second quarter.

For more on how Treasuries are losing out to equities, click here.

A decline in U.K. bonds, which didn’t trade on Monday due to a public holiday, pushed 10-year yields three basis points higher to 1.46 percent. Yields on similar-maturity German bunds were little changed at 0.17 percent, after a three-basis point increase on Monday that was the most since May 18.

Stocks

The S&P 500 climbed 0.1 percent to 2,100.56, the highest since April 20. U.S. equities markets were closed Monday for a holiday. The index has climbed 1.6 percent in May, headed for the longest run of monthly advances since 2014.

The Stoxx Europe 600 Index lost 0.3 percent. The measure is still on course for a 2.3 percent gain in May, its biggest monthly climb since November. Volkswagen A slid 1.8 percent on Tuesday, leading a gauge of carmakers to the worst performance of the 19 industry groups on the European equity benchmark.

Investors are focusing on monetary policy this week, with the European Central Bank announcing its rate decision on Thursday, followed by a press conference by President Mario Draghi.

The Shanghai Composite Index jumped 3.3 percent, the most since March 2. Contracts on the CSI 300 Index dropped as much as 10 percent at around 10:42 a.m. local time, recovering almost all of the losses in the same minute. The move had little effect on the underlying CSI 300, which rose 3.4 percent.

For more on Chinese equity trading and mounting short bets, click here.

Chinese stocks rallied as Goldman Sachs Group Inc. said it was likely the nation’s shares would be included in MSCI Inc.’s global benchmark indexes.

Commodities

West Texas Intermediate crude was up 0.4 percent from Friday’s close in the U.S., to $49.58 a barrel, as traders await Thursday’s meeting of OPEC suppliers. WTI has climbed 7.7 percent in May, its fourth straight monthly advance and the longest stretch of gains since 2011.

Militant attacks have cut Nigerian oil supply to the lowest level in more than two decades while Canadian output is still stabilizing after sliding amid wildfires. Libya’s Petroleum Facilities Guard captured a town near the Es Sider and Ras Lanuf oil-loading terminals after fierce clashes with Islamic State militants.

Soybeans were set for a third monthly gain amid speculation that reduced supply from South America will spur increased demand from the U.S. Raw sugar for July advanced to highest since November 2014 amid congestion at ports in Brazil, the world’s biggest sugar grower and producer.

Gold for immediate delivery jumped 0.6 percent to $1,212.25 an ounce, after sliding almost 6 percent over the previous nine days as the prospect of a U.S. rate hike diminished the precious metal’s appeal.

Currencies

The yen was little changed at 110.99 per dollar. The dollar took a breather, with the Bloomberg Dollar Spot Index, a gauge of the greenback against 10 major peers, slipping 0.3 percent. The index is still up 3.4 percent in May, after retreating over the previous three months.

Bets on the Fed increasing rates at next month’s meeting have jumped to 30 percent, from 12 percent a month ago, while odds of a move in July are at 54 percent, up from 26 percent, according to Fed funds futures tracked by Bloomberg.

The Australian dollar jumped 0.8 percent Tuesday after data showed the contribution of net exports to first quarter gross domestic product and April building approvals both exceeded analysts’ estimates. It’s still poised for a second monthly decline after the central bank unexpectedly lowered the benchmark rate.