Spanish, French Bonds Climb After Auctions
U.S. Stocks Retreat
Jin Lee/Bloomberg
A trader works on the floor of the New York Stock Exchange (NYSE) in New York.
A trader works on the floor of the New York Stock Exchange (NYSE) in New York. Photographer: Jin Lee/Bloomberg
Dec. 1 (Bloomberg) -- Bloomberg's Deborah Kostroun reports on the performance of the U.S. equity market today. U.S. stocks declined as better-than-forecast manufacturing growth and a rally in French and Spanish bonds were not enough to extend the biggest three-day gain in the Standard & Poor’s 500 Index since March 2009. Bloomberg's Pimm Fox also speaks. (Source: Bloomberg)
Dec. 1 (Bloomberg) -- Mark Luschini, chief investment strategist at Janney Montgomery Scott LLC, discusses the potential impact of the European debt crisis on financial markets and investment strategy. He speaks on Bloomberg Television's "InBusiness With Margaret Brennan." (Source: Bloomberg)
Dec. 1 (Bloomberg) -- Troy Gayeski, senior portfolio manager at SkyBridge Capital LLC, talks about the outlook for global markets and investment strategy. He speaks with Scarlet Fu on Bloomberg Television's "InsideTrack." (Source: Bloomberg)
Dec. 1 (Bloomberg) -- David Riley, head of global sovereign ratings at Fitch Ratings Ltd., discusses the outlook for French bonds, the U.S. economy and efforts to resolve the euro-zone crisis. He talks with Maryam Nemazee on Bloomberg Television's "The Pulse." (Source: Bloomberg)
Dec. 1 (Bloomberg) -- Mauro Guillen, a professor at the Wharton School of the University of Pennsylvania, talks about the European debt crisis. Six central banks led by the Federal Reserve made it cheaper for banks to borrow dollars in emergencies in a global effort to ease Europe’s sovereign-debt crisis. Guillen speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)
Dec. 1 (Bloomberg) -- Kelvin Tay, the Singapore-based chief investment strategist at UBS Wealth Management, talks about central banks' monetary policies, China's decision to cut banks' reserve requirements, and the potential impact of the moves on the global economy and financial markets. Six central banks led by the Federal Reserve made it cheaper for banks to borrow dollars in emergencies in a global effort to ease Europe’s sovereign-debt crisis. Tay speaks with John Dawson on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)
Dec. 1 (Bloomberg) -- David Joy, the Boston-based chief market strategist at Ameriprise Financial Inc., talks about his investment strategy and Europe's sovereign debt crisis. U.S. stocks advanced, driving the Dow Jones Industrial Average up the most since March 2009, after six central banks took action on Europe’s crisis by making it cheaper for lenders to borrow in dollars. Joy speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)
Dec. 1 (Bloomberg) -- Stephen Green, Hong Kong-based head of Greater China research at Standard Chartered Plc, talks about China's economy and central bank monetary policy. The People’s Bank of China announced yesterday it will cut the reserve requirement for the nation’s lenders by 0.5 percentage points from Dec. 5. Separately, China’s manufacturing contracted for the first time since February 2009 as the property market cooled and Europe’s crisis cut export demand, a survey showed. Green speaks with John Dawson on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)
U.S. stocks retreated as data showing improving manufacturing growth was not enough to extend the best three-day rally since 2009 for the Standard & Poor’s 500 Index. Spanish and French bonds rallied as successful debt auctions tempered concern about Europe’s sovereign crisis.
The S&P 500 (SPXL1) slipped 0.2 percent to close at 1,244.58 at 4 p.m. in New York following a 4.3 percent jump yesterday when six central banks took coordinate action to ease funding strains stemming from turmoil in European bond markets. The yield on France’s 10-year note dropped 29 basis points, the most since 1991, to 3.11 percent. Spain’s five-year yield tumbled 57 basis points to 5.29 percent. The euro was up 0.1 percent at $1.3461, paring an earlier 0.6 percent advance.
A report showing U.S. manufacturing expanded at the fastest pace in five months and forecasts that data tomorrow will reveal a pickup in job growth failed to extend a three-day, 7.6 percent rally in the S&P 500. (SPX) A contraction in China’s manufacturing fueled concern Europe’s debt crisis is damaging the global economy as yesterday’s moves by central banks were viewed as only a temporary fix.
“We’re muddling along,” Peter Sorrentino, a senior fund manager at Huntington Asset Advisors in Cincinnati, which oversees $14.5 billion of assets, said in a telephone interview. “Until there’s a true resolution for the European situation, the U.S. markets will be somewhat of a prisoner from a psychological perspective. We’re still going to be range- bound.”
Banks Slump
Financial shares led losses among the 10 main industry groups in the S&P 500 as Massachusetts sued five lenders including JPMorgan Chase & Co., Citigroup Inc. and Bank of America Corp., claiming deceptive foreclosure practices.
JPMorgan and Citigroup Inc. fell more than 1.6 percent each after rallying more than 7 percent yesterday. Bank of America erased earlier losses to end up 1.7 percent. Massachusetts Attorney General Martha Coakley filed the lawsuit today against the three banks, as well as Wells Fargo & Co. and Ally Financial Inc., in state court in Boston.
Financial shares have led losses among the 10 main groups in the S&P 500 this year, dropping 20 percent as a group, amid concern Europe’s debt crisis and tighter regulatory scrutiny will hurt earnings and as low interest rates squeeze the profitability of lending. The group is trading (S5FINL) for 9.4 times next year’s earnings, compared with an average multiple of 16.3 times reported profits since 1993.
The S&P 500 erased losses earlier as data signaled that factories will keep supporting the economic expansion through the end of the year. The Institute for Supply Management’s factory index increased to 52.7 last month from 50.8 in October. Readings above 50 indicate expansion, and economists surveyed by Bloomberg News projected a gain to 51.8. Orders and production grew at the fastest pace since April.
Economic Data
Jobless claims climbed to 402,000 in the week ended Nov. 26 that included the Thanksgiving holiday, Labor Department figures showed. The median forecast of 43 economists in a Bloomberg News survey called for a drop to 390,000. Labor Department data tomorrow is forecast to show the U.S. added 125,000 jobs last month and the unemployment rate held at 9 percent, according to the median economist forecasts.
Improving economic data has sent the Citigroup Economic Surprise Index for the U.S. to the highest since March 18. The gauge, which measures the rate at which data is beating or missing economist forecasts, reached 61.9 today and has rebounded from a more-than two-year low of minus 117.2 on June 3.
James Bullard, president of the Federal Reserve Bank of St. Louis, said recent reports point to stronger economic growth and policy makers shouldn’t rush to ease monetary policy further. Fed officials are debating whether the central bank should resume large-scale purchases of securities to push down the jobless rate.
‘Wait and See’
“The data have come in stronger than expected, so I think the logical thing now is to wait and see,” Bullard said in an interview in New York today at the Bloomberg Hedge Fund Conference hosted by Bloomberg Link. “See if we continue to get a good read on the holiday season and start out the New Year stronger or weaker, and also assess the situation in Europe and see how that feeds back to the United States.”
The S&P GSCI Index of commodities slipped 0.5 percent following a three-day, 3.4 percent rally. Nickel, Brent crude oil and zinc fell at least 1.3 percent to help lead losses in 16 of 24 commodities tracked by the index.
The dollar strengthened against eight of 16 major peers, while the euro increased against nine. The Australian currency dropped versus 15 of 16 major peers after building approvals dropped in October and consumer spending slowed.
Bond Yields
The 10-year Treasury note fell for a fifth straight day, sending the yield up two basis points to 2.09 percent after rising as much as seven points earlier and ending eight points higher yesterday.
The gain in French 10-year bonds narrowed the yield gap with benchmark German bunds to as little as 84 basis points, the least since Oct. 13. The Spanish-German spread reached a one- month low while the Italian spread was the least since Nov. 4.
The rate that London-based banks say they pay for three- month loans in dollars was 0.527 percent today, according to the British Bankers’ Association, marking the first time three-month Libor has declined since July 25. Three-month cross-currency basis swaps signaled dollar-funding costs for European banks retreated for a second day after reaching a three-year high before the coordinated central-bank action yesterday.
The central banks of the U.S., the euro region, Canada, the U.K., Japan and Switzerland agreed yesterday to cut the cost of providing dollar funding via swap arrangements, the Fed said, and agreed to make other currencies available as needed.
‘How Serious’
“Sovereign debt will continue to be the focus for the entire market,” Gary Jenkins, head of fixed income at Evolution Securities Ltd. in London, said in a report. “The coordinated move was welcomed by the market, but the fact that central banks saw the need for such measures confirms how serious the bank funding situation is.”
European Central Bank President Mario Draghi signaled the ECB could do more to fight the debt crisis as long as governments push the euro area toward a fiscal union. Draghi didn’t specify what more the ECB could do and said the central bank’s bond purchases “can only be limited.”
French borrowing costs declined in an auction of 10-year bonds and Spain sold 3.75 billion euros ($5.1 billion) of debt, the maximum amount planned.
France Auction
France sold 1.57 billion euros of 10-year debt at an average yield of 3.18 percent, down from 3.22 percent at the last auction on Nov. 3. The yield on Spain’s five-year bonds was 5.544 percent, compared with 4.848 percent when notes with a similar maturity were auctioned on Nov. 3.
The cost of insuring against default on sovereign debt fell for a third day with the Markit iTraxx SovX Western Europe Index of credit-default swaps linked to 15 governments dropping 1.2 basis points to 337.
The MSCI Emerging Markets Index (MXEF) rose 3.3 percent, extending this week’s gain to 9.3 percent, the biggest four-day rally since 2009. The Hang Seng China Enterprises Index jumped 8.1 percent, the most since 2008, after the Chinese government cut the reserve-ratio requirement for lenders. Benchmark indexes in Brazil, India, South Korea and Taiwan advanced more than 2 percent.
To contact the reporters on this story: Stephen Kirkland in London at skirkland@bloomberg.net; Rita Nazareth in Sao Paulo at rnazareth@bloomberg.net
To contact the editor responsible for this story: Michael P. Regan at mregan12@bloomberg.net
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