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Dow Average Tops 17,000, Treasuries Sink After Jobs Data

By Stephen Kirkland and Jeremy Herron
July 03, 2014 2:11 PM EDT 55 Comments
Trader Peter Tuchman jokes with a handmade "Dow 17,000" cap as he works on the floor of the New York Stock Exchange on July 1, 2014.
Photographer: Richard Drew/AP Photo
Trader Peter Tuchman jokes with a handmade "Dow 17,000" cap as he works on the floor of the New York Stock Exchange on July 1, 2014.

Declining unemployment and a pledge that European interest rates will stay low jolted the Dow Jones Industrial Average above 17,000 for the first time, lifted the dollar and sent bonds lower.

The Standard & Poor’s 500 Index (SPX) added 0.6 percent to extend an all-time high, while the Dow average climbed 0.5 percent to 17,068.26. The Stoxx Europe 600 Index added 0.9 percent, capping the biggest three-day rally in 10 weeks. The Bloomberg Dollar Spot Index rose 0.2 percent and the yield on 10-year Treasuries increased one basis point to 2.64 percent at 2:10 p.m. in New York. Gold fell the most since May and corn entered a bear market.

The U.S. unemployment rate fell to an almost six-year low of 6.1 percent, underscoring a brighter U.S. labor market that will help spur the economy. ECB President Mario Draghi said the central bank sees rates at current levels for an extended period after policy makers left borrowing costs unchanged at record lows. Sweden’s currency tumbled the most since 2011 after the central bank cut borrowing costs by more than analysts estimated. U.S. equities markets closed at 1 p.m. ahead of the Independence Day holiday.

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“This is a pretty strong report,” said Jim Paulsen, chief investment strategist at San Francisco-based Wells Capital Management, in a phone interview. “This is stuff that is going to lead to upward revisions of second quarter growth rates and it starts off the third quarter in a real positive momentum place.”

Inflation Watch

The U.S. added 288,000 jobs following a 224,000 gain the prior month that was bigger than previously estimated, Labor Department figures showed. The median forecast in a Bloomberg survey of economists called for a 215,000 advance. The jobless rate is the lowest since September 2008.

Another report from the Institute for Supply Management showed services industries, which make up almost 90 percent of the world’s largest economy, expanded last month at slower pace than economists in a Bloomberg survey estimated.

Benchmark 10-year yields reached 2.69 percent, the highest since May 2, based on Bloomberg Bond Trader prices. Traders pushed the odds up to almost even that Federal Reserve Chair Janet Yellen and policy makers will lift borrowing costs by next June, while Wall Street economists moved up their estimated dates for the Federal Reserve’s first interest-rate increase since 2006.

“The stellar jobs report hits the Fed right between the eyes on how good labor market conditions out there truly are,” said Chris Rupkey, chief financial economist for Bank of Tokyo-Mitsubishi UFJ in New York. “It shows how far behind the curve they are,” he said, adding that he now expects the first rate increase in March next year instead of June.

Equity Records

Yellen said on June 18 that policy makers planned to hold interest rates near zero for a “considerable time” as slack in the jobs market kept inflation below its 2 percent target. The central bank has kept its benchmark rate near zero since December 2008.

U.S. benchmark indexes have extended a rebound from a selloff earlier this year that started with biotechnology and small-cap stocks. The S&P 500 has rallied 9.3 percent since reaching a two-month low in April as central bank stimulus spread from Europe to Japan and the U.S.

Among stocks that moved today, financial firms jumped 0.8 percent, led by online brokers and insurers. Life insurers such as Lincoln National Corp. and No. 1 MetLife Inc. benefit from higher bond yields, which allow them to invest clients’ premiums at higher rates.

Paccar Inc. added 5.4 percent amid speculation that the maker of Kenworth and Peterbilt trucks may receive takeover interest from Volkswagen AG, which denied it. PetSmart Inc. jumped 13 percent after Jana Partners LLC disclosed a new activist stake and urged the retailer to explore strategic options including a sale.

Draghi Comments

The ECB left its benchmark interest rate at 0.15 percent as predicted by all economists surveyed by Bloomberg News. Stocks rallied on June 5 after Draghi announced new measures to stimulate lending and said the central bank would begin preparations related for an asset-purchase plan.

Draghi reiterated that he’ll keep interest rates low as officials try to revive the region’s economy with a new round of emergency measures.

The Stoxx 600’s gain today pushed its three-day advance to 2.1 percent, the most since April. Five shares rose for every one that declined.

Gold futures retreated 0.8 percent to settle at $1,320.60 an ounce while silver slid 0.8 percent as demand for haven assets declined.

West Texas Intermediate crude fell 0.7 percent, a sixth day of losses that would be its longest losing streak since 2012.

Corn for December delivery fell 0.7 percent to $4.1525 a bushel in Chicago, on expectations farmers will produce a record crop in the U.S., the world’s largest grower and exporter. That leaves prices down 20 percent from this year’s settlement high of $5.215 in April, meeting the common definition of a bear market.

To contact the reporters on this story: Stephen Kirkland in London at skirkland@bloomberg.net; Jeremy Herron in New York at jherron8@bloomberg.net

To contact the editors responsible for this story: Michael P. Regan at mregan12@bloomberg.net Jeremy Herron, Stuart Wallace

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