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(CEP News) - Treasuries sold off and equity markets got a lift when a key index of U.S. manufacturing improved, but the moves were short-lived because a closer look at the data showed signs of a slowing economy.
June's ISM manufacturing index rebounded to 50.2 from 49.6. The consensus forecast was for a decline to 48.5. The improvement in the index boosted stocks, bond yields and the U.S. dollar. A second look showed the employment index falling to its lowest level in five years and prices paid to its highest level since 1979. "The ISM looked very strong but the details were pretty stagflationary," said Carl Lantz, interest rate strategist at Credit Suisse First Boston. Economists said the reason for the index's rise was a build in inventories. Markets reacted by paring back the initial moves. Flows are also playing a large part in markets as Tuesday marks the beginning of a new month and quarter. Canadian markets are closed due to the Canada Day holiday. The Dow Jones industrial average is down 108 points to 11242, the S&P 500 is down 12 points to 1268 and the Nasdaq is down 29 points to 2264. European stock markets closed with the Eurostoxx down 56 points to 2850, the UK FTSE 100 down 146 points to 5480 and the German DAX down 102 points to 6316. Lantz said Treasury yields are moving in tandem with stocks after a month of moving in opposite directions. "The move lower in equities has gotten to a point where the bond market is noticing," Lantz said. U.S. two-year yields are down 5.7 bps to 2.56%, with five-year yields down 6.1 bps to 3.27%, 10-year yields are down 2.9 bps to 3.94% and 30-year yields are down 1.3 bps to 4.51%. The Eurodollar September 08 contract is up 1.0 tick to 97.08. The yield curve is steeper, with the 10/2-year spread up 2.6 bps to 137.83 bps. In Germany, returns on two-year German bonds are down 2.1 bps to 4.58%, with five-year yields down 0.9 bps to 4.63%, 10-year yields down 0.6 bps to 4.62% and 30-year yields down 2.0 bps to 4.83%. Yields on UK two-year bonds are down 1.0 bps to 5.22%, with five-year yields flat at 5.17%, 10-year yields up 1.3 bps to 5.14% and 30-year yields up 5.4 bps to 4.74%. In foreign exchange, the Canadian dollar is down 0.0002 to 0.9786 against the U.S. dollar (1.0218 USD/CAD) and down 0.53 to 103.46 against the yen. The U.S. dollar is down 0.48 to 105.73 against the yen and the Dollar Index is down 0.049 to 72.414. The euro is up 0.0028 to 1.5783 against the U.S. dollar, up 0.0035 to 1.6127 against the Canadian dollar, up 0.0012 to 0.7920 against the pound sterling and is lower by 0.48 to 166.85 against the yen. The pound sterling is up 0.0006 to 1.9929 against the U.S. dollar and up 0.0011 to 2.0363 against the Canadian dollar. WTI crude oil is up $2.31 to $142.31. The front month gold contract at the Chicago Board of Trade is up $17.10 to $945.20 per ounce. All data taken at 12:10 p.m. EDT. By Adam Button,
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, edited by Stephen Huebl,
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