Stocks, Euro, Commodities Fall on Summit Fallout
Stocks, the euro and commodities tumbled as Moody’s Investors Service and Fitch Ratings said last week’s summit did little to ease pressure on Europe’s struggling governments. Intel (INTC) Corp. led a retreat in technology companies after cutting its fourth-quarter revenue forecast.
The Standard & Poor’s 500 Index lost 1.5 percent to 1,236.47 at 4 p.m. in New York and the Stoxx Europe 600 Index tumbled 1.9 percent. The euro weakened 1.5 percent to $1.3187, approaching its 2011 low. The 10-year Italian bond yield increased 20 basis points after earlier surging as much as 43 points. The cost of insuring against default on European government debt approached a record. Zinc and cotton lost at least 3.4 percent and natural gas slid to a 27-month low.
The EU summit offered few new measures and doesn’t diminish the risk of credit downgrades on European nations, Moody’s said today. Equities and the euro extended losses as Fitch said a comprehensive solution has not yet been offered and predicted a “significant economic downturn” in the region. The onus remains on governments rather than the European Central Bank to solve the crisis, Bundesbank President Jens Weidmann told Frankfurter Allgemeine Sonntagszeitung.
“The big issue is: Did the European summit do enough to stave off these downgrades or not?”Nick Sargen, chief investment officer at Fort Washington Investment Advisors in Cincinnati, which oversees more than $39 billion, said in a telephone interview. “Most people come to the conclusion that downgrades on the region’s sovereigns are easily justifiable. If the rest of the world is slowing down, we too would feel some of that impact.”
Retreat Following Rally
The S&P 500 retreated after climbing for two straight weeks, its first back-to-back weekly advance since October. Technology, energy and financial shares were the biggest drags on the index among 10 groups today.
The S&P 500 has struggled to stay above its 2010 closing level of 1,257.64 since topping it during the last week of October after slumping below it for almost three months. The index has shown a year-to-date gain during 18 sessions since Oct. 27, only to later turn lower for 2011. It is currently down about 1.7 percent for the year, led by a 21 percent slide in financial shares.
Intel sank 4 percent, the most since August, as the world’s largest maker of semiconductors cut its forecast for fourth- quarter revenue, saying supply shortages for hard drives are prompting computer makers to cut orders for other components. The shortages, stemming from the worst flooding in Thailand in 70 years, will continue into the first quarter, Intel said.
Citigroup Inc., Bank of America Corp. and JPMorgan Chase & Co. tumbled at least 3.4 percent to lead a retreat in 23 of 24 stocks in the KBW Bank Index (BKX), which lost 2.5 percent.
JPMorgan’s chief U.S. equity strategist, Thomas Lee, forecast the S&P 500 will climb to 1,430 by the end of next year, a 14 percent rally from last week’s close, and named financial stocks as the firm’s “top pick” for 2012. Lee listed eight reasons for the advance, including an easing of Europe’s debt crisis by the second half of the year, further recovery in the U.S. housing market, the American election cycle and a “selective easing” of monetary policy in China.
Barton Biggs, the hedge fund manager who increased bets on U.S. equities before the S&P 500 rallied this month, said he’s still bullish.
“I’m biased toward the long side,” he said during an interview on Bloomberg Television “In the Loop” with Betty Liu today. “U.S. big-capitalization, U.S. stocks and Asian stocks are the best houses in a fairly tough, bad neighborhood.” Biggs said equities may surge or drop 20 percent because of concern about budget negotiations and Europe.
The yield on the 30-year Treasury bond fell five basis points to 3.06 percent, with 10-year yields slipping four basis points to 2.02 percent.
The S&P GSCI Index of commodities slumped 1.3 percent, as 19 of 24 commodities retreated. Silver for March delivery dropped 3.9 percent to $31.002 an ounce. Copper declined 2.6 percent and oil lost 1.7 percent to $97.77 a barrel in New York. Natural gas fell to the lowest in more than two years, losing 1.9 percent to $3.254 per million British thermal units, on forecasts for warmer weather and stockpiles near record highs.
Almost 16 shares fell for every one that advanced in the Stoxx 600, extending last week’s 0.1 percent drop. HSBC Holdings Plc slipped 3.2 percent and Banco Santander SA lost 4.2 percent to pace a drop among 49 of 50 banks in the index. Commerzbank AG, Germany’s second-largest bank, tumbled 7.8 percent on concern it will need state aid. After European markets closed, Germany’s Finance Ministry denied a Reuters report that it’s in talks to offer state assistance to Commerzabank, saying that communication between the government and the bank doesn’t go beyond “exchange of information.”
The two-year Italian note yield decreased 11 basis points to 5.85 percent after surging as much as 53 points earlier. The government sold 365-day bills at an average yield of 5.952 percent, compared with 6.087 percent at the previous auction.
The extra yield investors demand to hold 10-year French bonds instead of benchmark German bunds climbed 14 basis points to 126 basis points. France sold 4 billion euros ($5.3 billion) 13-week bills at an average yield of 0.222 percent. France also sold 1 billion euros of 308-day bills and 1.5 billion euros of 182-day bills.
The Markit iTraxx SovX Western Europe Index of credit- default swaps on 15 governments climbed for a fifth day, jumping 18.5 basis points to 382, the highest since closing at its all- time high of 386.5 on Nov. 25.
The dollar appreciated against all 16 major peers monitored by Bloomberg, strengthening 0.3 percent versus the yen and 0.6 percent against the pound. The euro weakened against eight of 16 major peers, while strengthening at least 0.7 percent versus the Swedish krona, South African rand and Brazilian real.
Foreign-exchange strategists are reducing forecasts for the euro at the fastest pace this year as ECB President Mario Draghi’s interest-rate cuts remove one of the currency’s pillars of support. Since Nov. 3, when Draghi began to undo the rate increases implemented earlier this year by his predecessor, Jean-Claude Trichet, analysts have cut end-of-2012 estimates for the euro to $1.32 from $1.40, based on the median of 40 forecasts in a Bloomberg survey as of last week.
The shared currency has weakened versus every major peer except the Swiss franc since then, after gaining against 12 of the 16 this year prior to that.
Royal Bank of Scotland Plc Chief European Economist Jacques Cailloux said the agreements reached at the EU summit last week are unlikely to inspire the ECB to engage in large-scale bond purchases to support struggling nations.
“Perhaps more importantly, we reiterate our view that even if the ECB was to intervene more aggressively, this would be no panacea,” he said.
The ECB settled settled 635 million euros ($841 million) of bond purchases last week, down from 3.7 billion euros the previous week.
The MSCI Emerging Markets Index (MXEF) slipped 1.1 percent, erasing earlier gains of as much as 0.9 percent. India’s Sensex Index fell 2.1 percent after industrial production fell for the first time since June 2009. The Shanghai Composite Index (SHCOMP) lost 1 percent after data showed overseas shipments rose by the least in two years. Benchmark gauges in Brazil, Argentina, Turkey and Russia lost more than 1.5 percent.
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