Euro Strengthens as Debt Concerns Subside; Treasuries Fall, Stocks Advance
Euro Gains on Debt Auctions
Hannelore Foerster/Bloomberg
A Euro sign sculpture stands outside the European Central Bank's (ECB) headquarters in Frankfurt.
A Euro sign sculpture stands outside the European Central Bank's (ECB) headquarters in Frankfurt. Photographer: Hannelore Foerster/Bloomberg
Jan. 12 (Bloomberg) -- Bloomberg's Deborah Kostroun reports on the performance of the U.S. equity market today. U.S. stocks rose, sending the Standard & Poor’s 500 Index higher for a fourth day, as a drop in borrowing costs at auctions in Europe overshadowed disappointing American jobless claims and retail sales data. Bloomberg's Pimm Fox also speaks. (Source: Bloomberg)
Jan. 12 (Bloomberg) -- Bill Gross, who runs the world's biggest bond fund at Pacific Investment Management Co., talks about the outlook for the global economy and financial markets in 2012. Gross also discusses his investment strategy and U.S. Treasuries. He speaks with Trish Regan on Bloomberg Television's "Street Smart." (Source: Bloomberg)
The euro gained as European (SXXP) Central Bank President Mario Draghi said he saw signs of stabilization in the region and yields decreased at Spanish and Italian debt auctions. U.S. stocks rose, erasing early losses. Treasuries fell as a 30-year bond sale drew lower-than-average demand.
The euro added 0.9 percent to $1.2823 at 4:18 p.m. in New York and climbed versus 14 of 16 major peers. The Standard & Poor’s 500 Index advanced 0.2 percent to 1,295.5 and the Dow Jones Industrial Average (INDU) rose 21.57 points to 12,471.02, five- month highs for both. Ten-year Treasury yields added two basis points to 1.93 percent. Oil sank after Bloomberg News reported a European Union embargo on Iranian imports may be delayed, while corn and wheat slid on forecasts for larger stockpiles.
The S&P 500 climbed for a fourth straight day, extending its 2012 gain to 3 percent, as the Spanish and Italian auctions fueled optimism that Europe’s debt crisis was not worsening and overshadowed data on U.S. jobless claims and retail sales that disappointed investors. The ECB’s Draghi said that while risks remain, the economy was showing signs of stabilization as the central bank kept its benchmark interest rate at 1 percent.
“Any good news for the euro zone could be a trigger for traders to cover their short positions,” said Mamoru Arai, foreign exchange manager at Mizuho Financial Group Inc. in New York. “The market focused on the fairly positive comments about the European economy from Draghi but I think they were well balanced. And there was the good auction from Spain.”
Euro Strengthens
The euro rebounded from a 16-month low versus the dollar and near an 11-year low versus the yen. Spain sold 9.98 billion euros ($12.7 billion) of notes, compared with a target of as much as 5 billion euros, while the yield on Italy’s one-year bills fell to 2.735 percent. Spanish two-year note yields fell below 3 percent for the first time since April 2011 and the extra yield investors demand to hold Italian 10-year bonds versus benchmark German bunds tightened 37 basis points.
The 17-nation shared currency also climbed after industrial production in the euro area declined by less than economists forecast.
“According to some recent survey indicators, there are tentative signs of stabilization of economic activity at low levels,” Draghi said at a press conference in Frankfurt. “Substantial downside risks to the economic outlook for the euro area continue to exist in an environment of high uncertainty.”
Alcoa Inc., Caterpillar Inc. and DuPont Co. climbed more than 1.6 percent to lead the Dow’s advance as commodity producers and industrial companies had the top gains among the 10 main industries in the S&P 500. Financial shares in the S&P 500 rose 0.4 percent collectively, erasing earlier declines. The group of 81 banks, insurers and investment firms has surged almost 24 percent from a two-year low on Oct. 3 amid increasing optimism on the economy. The S&P 500 has rallied 18 percent over the same period.
Earnings Season
JPMorgan Chase & Co. will be the second company in the Dow to release fourth-quarter results, with the largest U.S. bank scheduled to report before markets open tomorrow. JPMorgan has beaten analysts’ average estimate for adjusted earnings per share for 15 straight quarters and 24 of the past 25. Its shares increased 0.5 percent today.
Earnings season will accelerate next week with reports from 48 companies in the S&P 500 and six Dow members, including Bank of America Corp., Intel Corp. and General Electric Co. Earnings grew 6 percent in the period, according to analyst estimates compiled by Bloomberg, which would mark the smallest increase in more than two years.
Chevron Falls
Chevron Corp. (CVX) lost 2.6 percent, dragging energy shares to the biggest decline among 10 groups. Chevron said fourth-quarter profit was “significantly below” the previous period’s after maintenance at a California refinery and the sale of a U.K. fuel plant hurt results.
Stocks fell in early trading after U.S. retail sales rose 0.1 percent in December, less than the 0.3 percent increase predicted in a Bloomberg survey of economists. Jobless claims climbed by 24,000 to 399,000 in the week ended Jan. 7, compared with a median estimate of 375,000 in a Bloomberg survey.
European (SXXP) financial shares advanced. Royal Bank of Scotland Group Plc jumped 5.6 percent as Britain’s biggest government- owned lender said it will cut 4,800 jobs. ING Groep NV, the largest Dutch financial-services company, advanced 3.7 percent after saying it will explore other options for the planned disposal of its Asian insurance and investment-management businesses.
European Retailers Plunge
A gauge of European retailers had the biggest drop on a closing basis since October 2008. Tesco Plc plummeted 16 percent, the most since at least 1988, after the U.K.’s largest supermarket chain reported Christmas sales that missed analyst estimates and reined back profit expectations. Delhaize Group SA, the owner of the U.S. Food Lion supermarkets, sank 11 percent in Brussels after also reporting sales that trailed projections.
The MSCI Emerging Markets Index gained 0.7 percent, headed for the highest close since Dec. 7. Benchmark gauges in Poland, Turkey and Hungary climbed more than 1.4 percent. The BSE India Sensitive Index fell 0.9 percent as Infosys Ltd. cut its full- year forecast for sales in dollar terms.
The Hungarian forint jumped 2 percent against the U.S. dollar after the government sold more bonds than planned and financing costs fell at an auction today.
Spanish Yields
The yield on Spain’s two-year note dropped for the fourth straight day, sliding 13 basis points to 2.96 percent. Italy’s 10-year yield sank 35 basis points to 6.63 percent. The yield on the French 10-year bond dropped 12 basis points to 3.04 percent, narrowing the difference in yield with bunds by 14 basis points to 120 basis points.
The yield on the existing 30-year U.S. Treasury bond increased one basis point to 2.97 percent.
The $13 billion in securities in today’s auction were sold at a yield of 2.985 percent, compared with the record low of 2.925 percent reached at the December sale and lower than the average forecast of 2.953 percent in a Bloomberg survey today of 21 primary dealers. The offering’s bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 2.6, versus an average of 2.7 in the previous 10 auctions.
Oil Reverses
Oil lost 1.8 percent to $99.10 a barrel after climbing 2.1 percent earlier. An EU embargo on imports of Iranian oil will likely be delayed for six months to allow countries such as Greece, Italy and Spain to find alternative supply, an EU official with knowledge of the talks said.
Copper jumped 2.9 percent to $3.649 a pound, a 10-week high, to lead gains among the 24 commodities in the S&P GSCI index. China, the biggest buyer of the metal, reported inflation slowed to a 15-month low in December. Natural gas dropped 2.8 percent to settle at $2.697 per million British thermal units, a two-year low, following a report showing a below-average decline in U.S. stockpiles and forecasts for milder weather.
Corn and wheat prices plunged the most in three months and soybeans slid after the U.S. forecast bigger inventories than analysts expected, easing concern that shortages will inflate prices for food and biofuels. Corn tumbled the 40-cent exchange limit, or 6.1 percent, in Chicago, soybeans lost 1.7 percent and wheat slid 5.6 percent.
To contact the reporters on this story: Michael P. Regan in New York at mregan12@bloomberg.net; Allison Bennett in New York at abennett23@bloomberg.net
To contact the editor responsible for this story: Michael P. Regan at mregan12@bloomberg.net
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