U.S. Stocks Erase Drop While Haven Demand Boosts Bonds, Gold

(Bloomberg) --U.S. stocks edged higher, interrupting a selloff in global shares sparked by Brexit concerns, as investors speculated the American economy can stave off any immediate ill effects of the secession vote.

The S&P 500 Index advanced after falling 0.7 percent, as shares in consumer discretionary companies gained amid data showing the U.S. services sector grew at the fastest pace in seven months. The Nasdaq Composite Index rose with biotechnology shares. The relative relief came as demand for havens grew on speculation Brexit could hamper global growth. Bond yields from Asia to Europe tumbled to record lows, the pound sank to its weakest in 31 years and a gauge of global equities faltered for a second day.

“There was a big flight to safety trade earlier and a lot of that has reversed,” said Michael Antonelli, an institutional equity sales trader and managing director at Robert W. Baird & Co. in Milwaukee. “You're looking at a market that's lacking direction right now. The primary driver for concern is what it always is -- a slow growth backdrop. We're in a no man's land before the next Fed meeting and the kick-off of earnings next week.”

The unexpectedly rapid advance in the Institute for Supply Management's non-manufacturing index, boosted by a resilient U.S. consumer, suggest the U.S. economy was gaining speed leading up to Britain's vote. Investors will get a reading Friday on American job creation last month, and today hear minutes from the Fed's last meeting, where the central bank delayed tightening.

Much of that data came before Britain's shock vote to exit the EU destabilized markets, wiping more than $3 trillion from global equities over two days. Equities recouped much of those losses during a four-day rally on bets central banks will work to limit any fallout, but declines resumed as the first tangible signs of stress emerged. At least five asset managers froze withdrawals from U.K. real-estate funds following a flurry of redemptions, while a prominent banker said crisis among Italian lenders, stoked by the vote, could spread.

“Everyone is trying to react to a situation we've never been in before,” said Stewart Richardson, chief investment officer at RMG Wealth Management in London. “We've had shocks to the system before, but we haven't had one like this. And we won't know the answers for a long time.”

Stocks

The S&P 500 climbed 0.3 percent at 12:10 p.m. in New York, rebounding after falling to its average price for the past 50 days, a key level watched by technical analysts. The gauge on Tuesday snapped a four-day rally after being routed in the two days following the Brexit vote.

The MSCI All-Country World Index dropped 0.5 percent and the Stoxx Europe 600 Index slid 1.7 percent, falling for a third day, with all its industry groups declining. Telecom companies and insurers were the biggest losers.

Deutsche Bank AG led losses in a gauge of European lenders as BlackRock Inc. cut the region's shares to underweight, with a negative view on the euro area's banking sector, amid the Brexit fallout.

The MSCI Emerging Market Index dropped 1.4 percent, falling for a second day. Shares in South Korea slid 1.9 percent and Taiwan's benchmark slid 1.6 percent, while stock indexes in South Africa and Poland both fell at least 1.1 percent.

Bonds

The yield on 10-year Treasury notes, the global benchmark for sovereign bonds, fell as much as six basis points to 1.318 percent. It stood at 1.3733 percent. Yields on 10-year government bonds in Australia, Japan, Germany, France and the U.K. sank to records. Securities in the Bloomberg Global Developed Sovereign Bond Index, with an average life of about 10 years, yield a record-low 0.40 percent.

Declining prospects of a Fed rate hike have spurred a torrent of demand for Treasuries, with almost $10 trillion of securities in the Bloomberg Global Developed Sovereign Bond Index yielding less than zero, up from about $9 trillion a week ago. In addition to experimenting with negative rates, some monetary authorities outside the U.S. are buying government debt, reducing the supply for investors who count on fixed-income assets.

Sweden's central bank pushed a potential tightening deeper into next year and signaled negative interest rates will last for two more years in response to Brexit-fueled fear about economic turmoil.

Currencies

The pound sank to a fresh 31-year low of $1.2798 before climbing back toward $1.30.

The yen jumped 1.1 percent to 100.65 per dollar, taking its advance since Britain's referendum to more than 5 percent.

“The yen is taking the brunt of the pound selling,” said Takuya Kawabata, an analyst at Gaitame.com in Tokyo. “It's a risk-off market triggered by the pound. We need to continue to remain wary of risk aversion prompted by the U.K.”

The currencies of New Zealand, Russia and South Africa -- commodity-exporting nations -- all dropped by at least 0.5 percent. South Korea's won led declines in Asia, sinking 0.9 percent versus the greenback.

The yuan dropped as much as 0.2 percent to a five-year low of 6.6980 per dollar after ABN Amro Bank NV, Credit Agricole CIB and Goldman Sachs Group Inc. cut forecasts for the currency on Tuesday. An index tracking the yuan versus 13 peers fell for eight of the nine days since Britain's referendum, spurring speculation China is seeking to weaken it amid the risk of a slowdown in the EU.

Commodities

Precious metals surged as investors piled into haven assets. Gold advanced as much as 1.4 percent to $1,375.28 an ounce in London, the highest level since March 2014. Silver gained as much as 2.9 percent.

Most industrial metals declined, with copper falling 2 percent to $4,720.50 a metric ton and lead dropping 1.7 percent. West Texas Intermediate crude slipped 1.1 percent in London to $46.10 a barrel after closing Tuesday at a one-week low.