Global stocks fell the most this year, commodities slid and the euro weakened as a plan to help Greece avoid default threatened to unravel and U.S. consumer confidence trailed estimates. Treasuries and costs to protect European debt rose.
The MSCI All-Country World Index (MXWD) lost 1.3 percent at 4 p.m. in New York. The Standard & Poor’s 500 Index tumbled 0.7 percent from a seven-month high, paring a drop of as much as 1.1 percent, and the Dow Jones Industrial Average lost 89.23 points. The S&P GSCI Index dropped 0.9 percent as 21 of its 24 commodities fell. The euro sank 0.9 percent to $1.3172 after touching a two-month high yesterday. Ten-year Treasury yields slid seven basis points to 1.97 percent, as Spain’s 10-year rate rose 13 basis points to 5.30 percent. The Markit iTraxx SovX Western Europe Index of credit-default swaps on 15 governments climbed 8 basis points to 330.
The S&P 500 snapped a streak of five straight weekly gains, the longest rally in more than a year. George Karatzaferis, the leader of one of Greece’s coalition parties, said the road map proposed for the nation is wrong and he can’t vote for the accord as is. Greek lawmakers must pass the latest austerity package and identify more spending cuts before euro-area governments endorse a second bailout, Luxembourg Prime Minister Jean-Claude Juncker said.
“The Greek economy is in real trouble,” David Kelly, who helps oversee $394 billion as chief market strategist for JPMorgan Funds in New York, said in a telephone interview. “It’s deeply frustrating to watch this very narrow-minded, linear view of how to solve a budget problem. The best way to solve a budget problem is to get an economy growing. That’s what they should be doing in Greece. Instead, they are forcing Greece into further austerity even though the country is in deep recession.”
Emergency talks of euro-area finance chiefs broke up late last night with Juncker saying Greece must turn its budget cuts into law, identify 325 million euros more in spending reductions and have major party leaders sign up to the program so they don’t reconsider after upcoming elections. Another extraordinary meeting was set for Feb. 15.
German Finance Minister Wolfgang Schaeuble told lawmakers in Berlin today that Greece is missing its debt-cutting targets, according to two people who took part in the meeting.
‘Blind to Risks’
“Markets have been a little blind to the risks still remaining in the system,” Philippe Gijsels, head of research at BNP Paribas Fortis Global Markets, said in a phone interview from Brussels. “The Greece solution has been promised for a while, but they cannot get their bits together.”
Today’s drop erased a 0.5 percent advance in the S&P 500 over the previous four days. All 10 of the main industry groups retreated, with commodity producers, industrial companies and financial firms losing at least 0.8 percent to lead declines in the S&P 500. Alcoa Inc. (AA), DuPont Co., Hewlett-Packard Co. and Bank of America lost more than 1.3 percent to lead declines in 29 of 30 stocks in the Dow, which trimmed losses after sinking as much as 147 points.
LinkedIn Corp. (LNKD) rallied 18 percent, the most since its initial public offering in May, after the biggest professional- networking website reporting quarterly sales that more than doubled and forecast increased 2012 revenue.
Benchmark U.S. stock indexes fell to their lows of the session after consumer confidence declined more than forecast. The Thomson Reuters/University of Michigan preliminary index of sentiment dropped to 72.5 from 75 in January. The median estimate in a Bloomberg News survey called for 74.8. The gauge averaged 89 in the five years leading up to the 18-month recession that ended in June 2009.
The U.S. trade deficit widened 3.7 percent in December to $48.8 billion, government data showed.
The political dissension in Greece halted a rally that yesterday sent the Dow (INDU) average to its highest since 2008, the Nasdaq Composite Index to its best level in 11 years and the S&P GSCI to the strongest since August. Italian 10-year bond yields yesterday retreated to their lowest level since October and the euro traded for the most against the dollar since Dec. 12. Resolution of the aid talks are needed to allow Greece to make a 14.5 billion-euro bond payment on March 20 and easy concern that the region’s crisis will spread to other nations including Italy, Spain and Portugal.
The rally in riskier assets, which this week sent the MSCI All-Country World Index (MXWD) into a bull market gain of 20 percent from last year’s low, was fueled by improving U.S. economic data and earnings as well as optimism Europe was containing the debt crisis after its central bank provided emergency cash to lenders. The U.S. jobless rate reported last week unexpectedly declined to an almost three-year low of 8.3 percent and earnings have topped analyst estimates at about 70 percent of the 331 companies in the S&P 500 that released results since Jan. 9.
‘One Important Risk’
“We see a moderate recovery, as we have seen for a while at the Federal Reserve,” Ben S. Bernanke, chairman of the U.S. central bank, told the National Association of Homebuilders in Orlando, Florida. “There are some risks to the recovery. Certainly one important risk relates to the whole set of issues concerning Europe and the fiscal, sovereign and banking issues there. That has the potential to create uncertainty and volatility in our financial markets.”
The Stoxx Europe 600 Index declined 0.9 percent today, extending this week’s drop to 1.3 percent. HSBC Holdings Plc and BNP Paribas paced losses that sent banks to the biggest decline among 19 groups. Cable & Wireless Communications Plc slid 17 percent in London as the company cut guidance for its Panama and Caribbean units. SSAB (SSABA), a Swedish steelmaker, sank about 7 percent after reporting a loss. Alcatel-Lucent, France’s largest telecommunications-equipment supplier, surged 12 percent after forecasting higher profit margins.
Italian Lenders Downgraded
After European markets closed, S&P cut the credit ratings of 34 of the 37 Italian banks it rates. UniCredit SpA, Italy’s biggest lender, had its grade lowered to BBB+/A-2 from A/A-1 following last month’s sovereign downgrade. The outlook is negative. Intesa Sanpaolo SpA (ISP) and Banca Monte dei Paschi di Siena SpA, the second- and third-largest banks, were also downgraded as S&P revised of the banking industry country risk assessment, or BICRA, to group 4 from group 3.
Copper dropped the most in two months, losing 2.9 percent to $3.862 a pound. Exports of goods from China, the biggest buyer of the metal, fell for the first time in more than two years in January, the customs bureau reported. Gold for April delivery declined 0.9 percent to $1,725.30 an ounce.
Brent crude was down 0.9 percent to $117.47 a barrel, ending the longest streak of gains for the March futures contract since October 2009. West Texas crude traded in New York fell from a three-week high, sliding 1.2 percent to $98.67.
The International Energy Agency cut its 2012 global oil demand forecast for a sixth month as a “darkening” economic outlook reduced prospects for growth. Worldwide crude consumption will increase by 800,000 barrels a day to 89.9 million barrels, from 89.1 million last year, the IEA predicted in its monthly oil market report today. That’s 300,000 less than its previous estimate. The agency cut its forecast after a “sharp deterioration” of economic growth projections by the International Monetary Fund last month to 3.3 percent from a September forecast of 4 percent.
German 10-year bonds rose for the first time in four days, driving the yield down 11 basis points to 1.91 percent. The extra yield investors demand to hold similar-maturity Spanish debt instead of bunds increased 23 basis points to 3.40 percentage points, while Greek securities due in October 2022 dropped, sending the yield 26 basis points higher to 31.31 percent
The 17-nation euro depreciated 0.8 percent versus the yen, retreating from a two month high, as it weakened versus 10 of 16 major peers. The U.S. dollar strengthened against all 16 major counterparts except the yen. The Australian dollar dropped 1.2 percent against the U.S. dollar after the Reserve Bank of Australia cut its forecasts for growth and inflation this year, boosting scope for policy makers to reduce interest rates.
The MSCI Emerging Markets Index (MXEF) slid 1.9 percent, the most since November on a closing basis. The Hang Seng China Enterprises Index (HSCEI) sank 2.3 percent as the nation’s customs bureau said exports fell and imports slid more than forecast in January, the first declines in two years, after a weeklong holiday disrupted trade and commodity prices dropped.
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