The Wall Street Journal - 22.08.2019

THE WALL STREET JOURNAL. ***** Thursday, August 22, 2019 |B11

HealthySpending

Lowe’sandTargetweresomeofthebiggestwinnersintheS&P
500Wednesdayaftertheyreportedstrongearnings.

Share-priceandindexperformance

Source: FactSet

25

0

5

10

15

20

%

10 noon 2 4

Target Lowe’s S&P500

A recent rally in silver

prices paused Wednesday as

upbeat retail earnings buoyed

stocks and limited haven buy-

ing of the

precious

metal.

Silver for

September delivery, the most-

active futures contract, inched

up less than 0.1% to $17.151 a

troy ounce on the Comex divi-

sion of the New York Mercan-

tile Exchange in regular trad-

ing. They were down 0.2% in

after-hours trading after min-

utes from the Federal Re-

serve’s July meeting showed

officials saw their move to cut

interest rates last month as a

“recalibration” rather than the

start of a more aggressive eas-

ing cycle.

Prices are still up about 11%

since mid-July and recently

hit their highest level in over

a year, boosted by a bout of

haven buying with nervous in-

vestors seeking assets that

tend to stay steady during

times of market volatility.

Because silver has many in-

dustrial uses but also some-

times trades like a haven

metal such as gold, analysts

have viewed its recent rally as

a sign of investor caution. The

rise has come as gold prices

have surged to six-year highs

and other haven assets such

as the yen have also climbed.

Interest-rate cuts around

the world have fueled the

flight to safety with some in-

vestors wary of a sharp slow-

down in economic growth that

hurts stocks and other risky

assets. Following the Fed’s

rate cut last month, some ana-

lysts expect the central bank

to continue lowering borrow-

ing costs to stabilize the U.S.

economy.

Fed Chairman Jerome Pow-

ell, who has been criticized by

President Trump for not low-

ering rates quickly enough, is

also scheduled to speak at the

Fed’s annual retreat in Jack-

son Hole, Wyo., on Friday.

Some analysts think the

precious-metals rally is over-

done, citing steady U.S. con-

sumer data points that have

helped calm markets. Upbeat

earnings from Target Corp.

and Lowe’s Cos. helped push

up stocks about 0.8% Wednes-

day.

In one sign of investor cau-

tion toward silver, hedge

funds and other speculative

investors cut net bets on

higher prices in consecutive

weeks through Aug. 13, Com-

modity Futures Trading Com-

mission data show. The pull-

back in net bullish bets came

after speculators pushed them

to their highest level since No-

vember 2017 in late July.

Elsewhere in commodities

Wednesday, most-active

Comex gold futures were un-

changed at $1,515.70 a troy

ounce, also pausing a rally.

U.S. crude-oil futures fell

0.8% to $55.68 a barrel on the

New York Mercantile Ex-

change, paring an earlier ad-

vance after weekly inventory

figures showed a buildup in

stockpiles of gasoline and dis-

tillates even as crude invento-

ries dropped.

Fears of plentiful supply

amid slowing demand have

hurt oil in recent weeks.

Brent crude, the global

price gauge, closed up 0.4% at

$60.30 on the Intercontinental

Exchange.

BYAMRITHRAMKUMAR

Silver Rally Pauses as Traders

Add Risk to Their Portfolios

The metal has many industrial uses but also sometimes trades like a safe investment such as gold. Workers collect molten silver.

ANDREY RUDAKOV/BLOOMBERG NEWS

extended rally. A stronger

dollar tends to dent returns

from emerging markets, since

it makes it more expensive

for developing countries to

service debt that is denomi-

nated in dollars.

Emerging markets have

one thing on their side, how-

ever: sliding U.S. government

bond yields. The drop in

Treasury yields this year has

made the returns that inves-

tors can get from emerging

markets, especially dollar-de-

nominated bonds, look attrac-

tive again, said Gustavo Me-

deiros, a portfolio manager at

investment manager Ash-

more.

Mr. Medeiros added in a

note Tuesday that he believes

bubbling fears of a potential

U.S. recession over the next

year may make emerging

markets even more attractive

because it could put a cap on

U.S. stock gains.

Morgan Stanley Wealth

Management, which has an

overweight rating on emerg-

ing-market stocks, is simi-

larly optimistic. It is betting

the dollar will top out for

the economic cycle sometime

in 2019 as domestic growth

slows.

“This should dispropor-

tionately benefit interna-

tional equities, led by EM eq-

uities,” the firm said in a

note.

The big risk to that bet?

That the dollar doesn’t slow

its ascent—and that growth

slows even more across

emerging markets.

Wells Fargo Investment In-

stitute said at the start of the

week that it was downgrading

emerging-market stocks to

neutral from favorable.

It added that it believes

the MSCI Emerging Markets

Index will end the year some-

where between 960 and

1060.

Emerging-market stocks

are taking a drubbing with

trade worries weighing on in-

vestors, but some say the

group is ripe for bargains.

Shares of stocks from In-

dia to Russia and South Af-

rica have slid in August, pull-

ing the MSCI Emerging

Markets Index down 5.5% for

the month. (The S&P 500, in

comparison, has fallen 2.7%.)

Analysts have attributed

the decline to fears that the

U.S.-China trade conflict will

slow global growth, as well

as worries about the dollar’s

BYAKANEOTANI

Emerging Markets Hold Promise of Bargains

COMMODITIES

Prices are up 11%

since mid-July,

recently hitting their

highest level in a year.

MARKETS

followed times when the yield

on the longer-term note has

exceeded that of the shorter-

term issue, as it did briefly last

week.

“The market seems to be re-

acting positively not only to

the underlying fundamentals

of the retailers and that

they’re strong, but also that

the institutions both on a fis-

cal and monetary basis stand

ready to do what needs to be

done to keep the expansion go-

ing in the U.S.,” said Thomas

Martin, a senior portfolio man-

ager at Globalt Investments.

Fed Chairman Jerome Pow-

ell is set to speak Friday in

Jackson Hole, Wyo., at the cen-

tral bank’s annual economic

policy symposium.

Analysts will be watching

for insights into the debate

surrounding last month’s rate

cut, as many, including Leslie

Sita, portfolio manager in

Lombard Odier IM’s fundamen-

tal fixed-income team, flagged

concerns around the presi-

dent’s criticism of Mr. Powell.

“Trump has made it clear

he didn’t like Powell’s policy,”

she said, adding that strate-

gists at Lombard Odier fore-

cast a cut of half a percentage

point at the next meeting.

“Even if Powell was wanting to

mention that he’s independent

in the way he does things, ob-

viously the pressure was

there.”

Investors also welcomed

possible political changes in It-

aly. The Stoxx Europe 600

climbed 1.2%, a day after the

country’s prime minister re-

signed.

Italy’s benchmark FTSE MIB

equities index outperformed

other indexes in the region.

In commodities, the price of

Brent crude rose 0.4% to settle

at $60.30 a barrel as tensions

in the Strait of Hormuz threat-

ened global supplies while ana-

lysts worried that global trade

concerns could cap demand for

oil in the coming months.

At midday Thursday in To-

kyo, the Nikkei 225 was down

0.2%. Also early in the day,

Hong Kong’s Hang Seng Index

was down 0.6%, the Shanghai

Composite was flat, South Ko-

rea’s Kospi was down 0.5% and

Australia’s S&P ASX 200 was

up 0.4%. The dollar was down

against the Japanese currency

to ¥106.45.

U.S. stocks climbed as
strong earnings reports from
retailers eased some of the
fears about slowing economic
growth.
Bond and stock traders have
been gloomy
about global
growth in re-
cent weeks,
with many in-
vestors expecting a cycle of
monetary easing from leading
central banks.
Some of the anxieties sur-
rounding growth were tem-
pered after retailers, including
Target and Lowe’s , posted
their latest quarterly results.
The Dow Jones Industrial
Average climbed 240.29 points,
or 0.9%, to 26202.73, while the
S&P 500 jumped 23.92 points,
or 0.8%, to 2924.43. The Nas-
daq Composite advanced 71.65
points, or 0.9%, to 8020.21.
Target shares soared 20% to
$103, a record, after the com-
pany raised its earnings guid-
ance for the year and reported
that sales and profit rose in
the second quarter. Lowe’s also
reported higher profit that
beat analysts’ estimates, push-
ing shares up 10%. The con-
sumer-discretionary and tech-
nology sectors within the S&P
500 were the biggest winners.
“There has been this very
big imminent recession narra-
tive that’s taken hold of the
market,” said R.J. Grant, direc-
tor of equity trading at KBW.
The latest earnings show “that
the consumer is a lot healthier
than people think.”
Stocks maintained their
gains after minutes from the
Federal Reserve’s latest meet-
ing showed officials stressed
the need to be flexible with
how they might act to lower
interest rates in the months
ahead.
Yields on short-term bonds,
which are particularly sensi-
tive to Fed policy moves, rose
after the release of the min-
utes. The yield on the two-year
Treasury note settled at
1.569%, compared with 1.515%
Tuesday. The yield on the 10-
year note inched up to 1.577%
from 1.557%.
Investors scrutinize the gap
between the two yields be-
cause recessions have often

BYGUNJANBANERJI
ANDAVANTIKACHILKOTI

Stocks Benefit

As Retailers Post

Strong Earnings

WEDNESDAY’S
MARKET

Germany sold 30-year debt
at a negative yield for the first
time, as investors desperate
for safe assets bet that further
falls in yields will boost the
value of the bonds in the fu-
ture.
Investors buying debt at a
negative yield get back less
than they paid if they hold on
until maturity. In Wednesday’s
sale, Germany borrowed €824
million ($914 million) through
bonds that pay no interest.
The bonds were sold slightly
above face value, so when they
mature in 2050, Germany will
pay back €795 million.
Demand for government
debt and high-grade corporate
bonds has been strong this
year, after major central banks
responded to growing fears of
a global slowdown with fresh
rounds of interest-rate cuts or
other looser monetary policy.
The European Central Bank
is a big buyer of German gov-
ernment bonds, while other

demand for negative-yielding

debt comes from asset manag-

ers and investors that use such

bonds as hedges for other

parts of their portfolios or as

part of derivatives-based

swaps trades.

One way investors could

make money is if rates con-

tinue to drop. Bond prices rise

as yields fall.

“Why are people buying at

negative yields? It is mainly in

expectation that you’re going

to be able to sell to someone

at a higher price later on,”

said Andrea Iannelli, invest-

ment director, fixed income at

Fidelity International. “What-

ever the yield you have to as-

sume you’re going to make

more on the capital gain than

lose on the yield.”

The German sale adds to

the roughly $16 trillion of neg-

ative-yielding bonds outstand-

ing world-wide, many of which

are from European govern-

ments or are state-sponsored

agency bonds. Only about 20%

of these were actually sold

with a negative yield at issue,

while the rest have seen yields

fall in secondary trading.

As much as €2 billion of

Germany’s new 30-year bonds

were offered for sale Wednes-

day, but the auction drew

€869 million of bids. The re-

maining bonds were retained

by the Bundesbank, the coun-

try’s central bank, and will be

sold into the market over

time.

Investors who bid were still

willing to pay more than face

value to buy €824 million of

the debt, which pushed the

overall yield on the bond into

negative territory, at minus

0.11%. By late afternoon, the

yield had declined to minus

0.153%, according to

Tradeweb.

“Even if the auction wasn’t

fully subscribed I wouldn’t say

it’s a bad result for Germany,”

said Alberto Gallo, head of

macro strategies at fund man-

ager Algebris.

Germany has been selling

shorter-dated debt with nega-

tive yields since the ECB

pushed its benchmark policy

rate negative in 2014.

But this is the first time

long-dated bonds, often owned

by pension funds and insur-

ance companies that have lia-

bilities spread out over de-

cades, have sold with the

promise of returning less than

put in.

Because yields on shorter-

maturity German debt are so

low—two-year debt yielded

minus 0.91% Wednesday—de-

mand for longer-dated bonds

or physical cash could pick

up.

“If [short-dated] yields fall

much further into negative

territory, investors looking for

safe assets will opt for cash in

the vault,” said Christian Kopf,

head of fixed income at Ger-

man fund manager Union In-

vestment.

BYPAULJ.DAVIES
ANDPATRICIAKOWSMANN

German Long Bond’s Yield Turns Negative

Germanyissueda30-yearbondWednesdaythatpricedwithanegativeyieldforthefirsttimeas

investorsincreasinglygetcomfortablewithowningdebtthatpaysbacklessthanwhatisputin.

YieldonGermany's

previous30-yearbond,

maturinginAugust2048*

Bondswith

negativeyields

atissue

Globalvolumeof

bondstradingwith

negativeyields,daily

*2019 through Aug. 15

Sources: Tullett Prebon (30-year); Barclays (bonds with negative yields); Deutsche Bank (global volumes)

$1.25

0

0.25

0.50

0.75

1.00

trillion

2016 ’17 ’18 ’19*

$15

0

5

10

trillion

2017 ’18 ’19

1.00

–0.25

0

0.25

0.50

0.75

%

MAM J J A