Treasuries, gold rise as search for safety rules

By Manuela Badawy

NEW YORK (BestGrowthStock) – U.S. Treasury prices rose on Monday and global stocks were little changed as weak growth in Japan added to worries over a tepid global economic recovery and cut investors’ appetite for risk.

Currencies perceived as safe harbors such as the yen and Swiss franc rose and gold hit a seven-weeks high, as weak economic growth around the world spurred talk of deflation.

News that Japan’s economy expanded by only 0.1 percent in the second quarter also dragged on crude oil prices, on fears that Japan, the world’s fourth largest energy consumer, would slow oil purchases.

“The phrase du jour is going to be deflation and it’s not only going to last for a day but for some time,” said Christian Cooper, senior rates trader at Jefferies & Co in New York.

“There’s real concern that without further stimulation of the economy, the overall weakness could lead not only to a double dip but to outright price deflation. … It may be an actual event as opposed to a concern.”

Japan’s gross domestic product grew a much slower-than-expected 0.1 percent in the April-June period, representing an annualized increase of 0.4 percent as export growth moderated and a stimulus-driven recovery in consumption ran out of steam.

The growth was far below the first-quarter’s 4.4 percent annualized growth rate.

With the latest output figures, Japan slipped behind China in the ranking of world economies. China now stands as the world’s second-largest economy.

U.S. stock indexes finished barely changed, suggesting several days of losses have not convinced institutions the market has become attractive. Composite volume was 5.69 billion shares, the lowest so far this year.

The Dow Jones industrial average (.DJI: ) closed down 1.14 points, or 0.01 percent, at 10,302.01. The Standard & Poor’s 500 Index (.SPX: ) rose 0.13 points, or 0.01 percent, at 1,079.38. The Nasdaq Composite Index (.IXIC: ) gained 8.39 points, or 0.39 percent, at 2,181.87.

Earlier, U.S. data on the housing market and manufacturing showed the economic recovery losing strength, while in Europe, shares closed lower as the data from the United States and Japan hurt sentiment.

U.S. homebuilder sentiment unexpectedly fell for a third straight month in August to its lowest level since March 2009, according to an industry survey.

And while the New York Federal Reserve Bank reported that its gauge of manufacturing in New York state rose in August after dropping in July, the Empire State index came in below forecast.

The pan-European stocks FTSEurofirst 300 index (.FTEU3: ) closed down 0.01 percent. World stocks measured by the MSCI All-Country World Index were up 0.3 percent after falling for four days in a row. The Thomson Reuters global stock index gained 0.41 percent.

Japan’s Nikkei (.N225: ) fell 0.6 percent, recovering from an early drop of as much as 1.7 percent.

The fall in Treasury yields has been a big factor weighing on the U.S. currency against the yen because of the recent high correlation between dollar/yen and Treasury yields.

The Swiss franc and the Japanese yen, both used to fund leveraged carry trades, are typically sought in times of market stress.

Against the Japanese yen , the dollar was down 1.01 percent at 85.32 from a previous session close of 86.190.

The dollar fell 1.2 percent to 1.0375 francs after hitting its lowest since August 6. The euro was 0.5 percent lower against the Swiss franc at 1.3324, having earlier dropped to its lowest since July 8.

However, the euro was up 0.54 percent at $1.2818 from a previous session close of $1.2750.

The benchmark 10-year U.S. Treasury note was up 28/32, with the yield at 2.57 percent, after hitting a 17-month low.

The 30-year U.S. Treasury bond rose 82/32 in price, with the yield at 3.71 percent, down from 3.86 percent at Friday’s close and a 16-month low. The two-year U.S. Treasury note rose 2/32, its yield at 0.5 percent.

Hedge funds and speculative traders have led the charge in buying long-dated debt, betting that yields will fall in a deflationary climate.

On Monday, central banks, overseas fund managers, pension funds, insurance companies, which have been on the sidelines, joined the fray.

“They threw in the towel and pushed the ‘buy’ button,” said Derrick Wulf, portfolio manager at Dwight Asset Management in Burlington, Vermont.

In the commodity market, gold rose to its highest level since early July, as the gloomy Japanese economic data stoked investor concern about the pace of global economic recovery.

Spot gold rose 0.86 percent to $1,224.00 an ounce after hitting an intraday day high of $1,227.15 — its highest since July 1. Bullion struck a record high around $1,264 in June.

Copper advanced 1 percent, helped by lower inventories and the weaker dollar. Crude oil prices fell 0.2 percent to settle at $75.24 as the Japanese and U.S. data fed worries about the energy demand outlook.

(Additional reporting by Edward Krudy, Emily Flitter, and Nick Olivari in New York and Dominic Lau in London; Editing by Leslie Adler)

Treasuries, gold rise as search for safety rules