Stocks, Irish Bonds Drop, Gold, Yen Rally on Europe Concern
Stocks, Irish Bonds Drop, Gold, Yen Rally on Europe Concern
Jin Lee/Bloomberg
A trader works on the floor of the New York Stock Exchange.
A trader works on the floor of the New York Stock Exchange. Photographer: Jin Lee/Bloomberg
Sept. 7 (Bloomberg) -- Bloomberg's Courtney Donohoe reports on the performance of the U.S. equity market today. U.S. stocks fell for the first time in five days, ending the longest streak of gains for the Standard & Poor’s 500 Index since July, on concern the European debt crisis may worsen, hampering global growth. Bloomberg's Pimm Fox also speaks. (Source: Bloomberg)
Sept. 2 (Bloomberg) -- William Fleckenstein, president of Fleckenstein Capital Inc., discusses equities and his investment strategy. Fleckenstein talks with Betty Liu and Jon Erlichman on Bloomberg Television’s “In the Loop.” (This is an excerpt of the full interview. Source: Bloomberg)
Sept. 7 (Bloomberg) -- Dan Gerstein, strategist at Dan Gerstein Consulting, and Daniel Clifton, head of policy research at Strategas Research Partners, talk with Bloomberg's Julie Hyman and Mark Crumpton about President Barack Obama's proposal to spend at least $50 billion on roads, railways and airports to help spur the U.S. economy. Gerstein and Clifton also discuss whether tax cuts passed during President George W. Bush's administration will be extended. (Source: Bloomberg)
Sept. 2 (Bloomberg) -- Subir Lall, mission chief to South Korea at the International Monetary Fund, talks about the outlook for the country's economy. Lall also discusses the rise of the Korean won and its impact on the nation's exports. Lall speaks with Rishaad Salamat on Bloomberg Television. (Source: Bloomberg)
Stocks slid, while Greek, Portuguese and Irish bonds tumbled, gold rose to a record and the yen surged to a 15-year high versus the dollar on concern Europe’s debt crisis will worsen. U.S. and German bonds rallied.
The MSCI World Index slid 1.1 percent and the Standard & Poor’s 500 Index lost 1.2 percent at 4 p.m. in New York. The gaps between 10-year German bond yields and Irish and Portuguese debt grew to all-time highs, while the German-Greek yield spread increased to the widest since May. The yen rose to as little as 83.52 per dollar as the Bank of Japan refrained from increasing bank loans. Ten-year Treasury yields lost 10 basis points to 2.6 percent. Gold futures closed at $1,259.30 an ounce.
Banks led stocks lower on concern European lenders will require more capital to compensate for holdings of bonds in the region’s weakest economies. Germany’s banking association said yesterday that the nation’s banks need to raise $135 billion and Pacific Investment Management Co. said Greece still faces “substantial” default risk.
“The challenges haven’t gone away,” said James Dunigan, chief investment officer at PNC Wealth Management in Philadelphia, which oversees $103 billion. “The European debt worries that haunted us earlier this year are showing up again. Even as last week we had a couple of economic signals that weren’t as bad as we thought, the headwinds have been around.”
European Debt
The rally in gold, Treasuries and the yen came as investors sought assets perceived as the safest. Even after a 750 billion euro ($960 billion) bailout for the weaker economies in the euro zone, investors are skittish about sovereign debt of some nations -- and about the banks that hold the region’s government bonds. A default by Greece could trigger the collapse of banks with large sovereign-bond holdings, says Konrad Becker, an analyst at Merck Finck & Co. in Munich.
The German bund yield dropped 8 basis points to 2.26 percent. Greek bonds plunged, pushing the yield on the 10-year security up 28 basis points relative to bunds to 942 basis points, the most since the European Union and International Monetary Fund crafted the bailout package in May.
The German-Irish 10-year yield spread climbed to as wide as 380 basis points, the highest since Bloomberg started compiling the data, from 343 basis points. It was at 372 basis points as of the close of trading in New York. The Portuguese-German spread reached 356 basis points, also a record, from 333 basis points. Wider spreads signaled increased concern that the most indebted European nations will struggle to fund budget deficits.
Stocks Rally Halted
The S&P 500 dropped for the first time in five days, halting its longest streak of gains since July. Wells Fargo & Co., JPMorgan Chase & Co. and Bank of America Corp. dropped at least 2.2 percent to pace a retreat in 77 of 80 financial companies in the index. Oracle Corp. rallied 5.9 percent after naming Mark Hurd, former chief executive officer of Hewlett- Packard Co., as a president.
President Barack Obama is planning to increase tax relief for businesses and federal spending on the transportation system to bolster an economy that’s losing jobs heading into the November congressional elections. The unemployment rate may approach 10 percent in coming months, according to economists at BofA Merrill Lynch Global Research and Morgan Stanley.
“People are batting around the same issues and using the same excuses for why on a macro basis they’re unable to invest,” said John Massey, who helps manage $13 billion at SunAmerica Asset Management Corp. in Jersey City, New Jersey. “There’s still this debate over whether we’re in a recession or in recovery mode.”
Japan, Australia
Japan’s and Australia’s central banks signaled the outlook for U.S. growth is deteriorating, making it tougher for them to set monetary policy. The Reserve Bank of Australia extended a pause in raising interest rates “for the time being” today, even after the nation’s gross domestic product rose the most since 2007. The Bank of Japan said it’s prepared to add more monetary stimulus after last week’s emergency decision to expand a credit program.
About five shares fell for every one that gained in the Stoxx Europe 600 Index, which lost 0.5 percent after reaching a four-week high yesterday. A government report showed German factory orders unexpectedly fell in July as demand in the euro region weakened, indicating the recovery in Europe’s largest economy is losing momentum. The MSCI Asia Pacific Index slipped 0.1 percent.
European Banks
Banco Santander SA slid 1.7 percent and BNP Paribas SA lost 2.2 percent. Barclays Plc sank 2.7 percent as Britain’s third- largest bank named President Robert Diamond as chief executive officer, succeeding John Varley. European bank stress tests published in July understated sovereign debt holdings at some financial institutions, the Wall Street Journal reported, citing its own analysis.
The cost of insuring financial-company bonds against default climbed by the most in a month, with the Markit iTraxx Financial Index of credit-default swaps on 25 banks and insurers rising 8.25 basis points to 137.75, according to JPMorgan Chase & Co.
A gauge of corporate credit risk in the U.S. rose for the first time in four trading sessions. The Markit CDX North America Investment Grade Index, a credit-default swaps benchmark that investors use to hedge against losses on corporate debt or to speculate on creditworthiness, increased 3.5 basis points to a mid-price of 107.22 basis points, according to Markit Group Ltd.
Rio Tinto Group helped lead basic-resources stocks lower in Europe, losing 1.8 percent, as Australian Prime Minister Julia Gillard clinched a deal to keep power. Gillard’s Labor government has proposed a tax on mining profits.
Yen, Dollar
The yen rose against all 16 of its major peers, strengthening 1.9 percent to 106.36 versus the euro. The euro weakened 1.4 percent to $1.2694 as it depreciated against 14 of 16 major peers. Australia’s dollar dropped 0.7 percent against the U.S. currency.
The dollar strengthened against all 16 major currencies except the yen and franc. The Dollar Index, which gauges the currency against six major trading partners, rallied 1 percent to 82.827.
Growing pressure on the Federal Reserve to print more money to bolster the U.S. economy will likely boost the yen and franc just as the Japanese and Swiss governments seek weaker currencies, if history is a guide. Those currencies appreciated the most on a relative basis after Fed efforts between December 2007 and March 2009 to jumpstart the economy expanded the central bank’s balance sheet to as much as $1.15 trillion, a Barclays Capital analysis of 17 exchange-rate pairs shows.
Gold Record Close
Gold futures for December delivery rose 0.7 percent to $1,259.30 an ounce on the Comex in New York, its highest closing price ever.
Copper for delivery in December fell 0.8 percent to $3.4705 a pound in New York.
Crude for October delivery retreated 0.7 percent to $74.09 a barrel on the New York Mercantile Exchange. Yesterday’s transactions will be booked with today’s for settlement purposes as there was no floor trading because of the Labor Day holiday.
The MSCI Emerging Markets Index slipped 0.7 percent, the first decline this month. OTP Bank Nyrt., Hungary’s largest lender, led the BUX index 1 percent lower. Russia’s Micex index lost 0.7 percent, dragged down by energy and mining companies.
To contact the reporters on this story: Rita Nazareth in New York at rnazareth@bloomberg.net; Elizabeth Stanton in New York at estanton@bloomberg.net.
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