Stocks, Euro Fall on Greece Concern as Commodities Gain
U.S. benchmark stock indexes slipped from four-year highs and the euro fell for the first time in four days as Greece struggled to qualify for aid. Copper rose on speculation policy makers will work to support growth.
The Standard & Poor’s 500 Index declined 0.6 percent to 1,429.08 at 4 p.m. in New York. The euro depreciated 0.4 percent to $1.2759, retreating from a three-month high. Italy’s 10-year bonds fell for the first time in six days. Coffee, zinc, natural gas and aluminum led gains in commodities. Ten-year Treasury yields slipped one basis point to 1.66 percent.
Greek Prime Minister Antonis Samaras met officials from the nation’s creditors today after failing to secure agreement from coalition partners on spending cuts. Italy’s economy shrank more than previously reported, China’s industrial output grew at the slowest rate since 2009 and Japan’s economy expanded at half the pace initially estimated, reports showed. Federal Reserve officials meet Sept. 12-13 after U.S. jobs growth in August trailed estimates.
“Europe will continue kicking the can down the road and there’s no quick solution,” Walter “Bucky” Hellwig, who helps manage $17 billion at BB&T Wealth Management in Birmingham, Alabama, said in a telephone interview. “Macro numbers have been very unimpressive, but there’s this aspect of expansionary monetary policy decisions that have been driving prices higher,” he said. “The market will turn on what the Fed does this week.”
Money market traders expect the Federal Reserve to keep borrowing costs at record lows for about three more years as the economic outlook worsens. Six months ago, they expected the Fed to raise interest rates by the end of 2013.
Bond market measures from overnight index swaps, which indicate no increase in the federal funds rate until mid-2015, to a 62 percent decline in a measure of volatility in government bonds signal that rates will stay near zero for longer. The gap between two- and five-year Treasury yields, which decreases when traders expect benchmark rates to remain subdued, is more than 50 percent narrower than its average since 2008.
A gauge of indicators of market expectations for additional central bank stimulus rose to a record 99 percent in August, according to Citigroup Inc. The measure increased to 82 percent in the months before the second round of quantitative easing in November 2010.
“The main theme is still the euro crisis and a lot expect that there will be an economic slowdown in the next few months,” said Thomas Muhlberger, a fund manager who helps oversee the equivalent of $1.7 billion at Johannes Fuhr Asset Management in Frankfurt. “Some see this as increasing the likelihood of more liquidity coming into the markets from central banks.”
The S&P 500 last week closed at the highest level since January 2008 after the European Central Bank announced plans to buy bonds of indebted countries to combat the debt crisis. Technology and financial shares led losses among the index’s 10 main industry groups today.
Bank of America Corp. lost 2.5 percent and JPMorgan Chase & Co. fell 1.4 percent to pace losses in 20 of 24 stocks in the KBW Bank Index. New regulations and capital requirements are “structural” changes to the banking industry that are more to blame for declining profits than the U.S. economic slump, Goldman Sachs Group Inc. analysts said in a report today.
Intel, International Paper
Intel Corp. (INTC) lost 3.8 percent after Nomura Holdings Inc. said estimates for the largest chipmaker’s earnings next year may fall further. International Paper Co. slid 4.2 percent after Deutsche Bank AG cut its rating to hold from buy, saying expected price increases may not be likely.
American International Group Inc. dropped 2 percent after the U.S. Treasury offered to sell $18 billion in AIG shares, with the bailed-out insurer planning to buy back as much as $5 billion.
A deal by U.S. lawmakers to head off automatic tax increases and spending cuts at the start of next year may be “messy” and could hurt stocks, Goldman Sachs Group Inc.’s chief U.S. equity strategist David Kostin said. The so-called fiscal cliff “is unlikely to be resolved in a smooth fashion, and probably will be resolved in a messy way,” Kostin said today at a conference in San Diego sponsored by the Insured Retirement Institute.
Kostin has the second-most bearish view of stock-market performance this year among Wall Street strategists tracked by Bloomberg. He estimates that S&P 500 will finish 2012 at 1,250, 13 percent below its close of 1437.92 on Sept. 7. The median estimate is 1,425.
Gamco Investors Inc. fund manager Howard Ward predicted U.S. stocks may climb to records in three to four months amid strong corporate earnings and further monetary easing by the Federal Reserve, he said in an interview on Bloomberg Television. U.S. stocks will surge 12 percent through the end of 2013, driving the S&P 500 (SPX) to a record, as an improvement in capital investment and industrial production boost earnings, Citigroup Inc. said.
The S&P 500 will climb to 1,615 by the end of 2013, according to a report dated Sept. 7 from Tobias Levkovich, the chief U.S. strategist at the bank. That would surpass its current all-time high of 1,565.15 reached Oct. 9, 2007.
“Attractive valuation, credit dynamics and implied earnings growth all support market appreciation even as sentiment is not as constructive,” Levkovich wrote in the report. “Economic and earnings expansion is likely even as margin concerns persist.”
The euro weakened against 10 of its 16 major counterparts, losing 0.4 percent versus the yen. Norway’s krone dropped versus all its main peers after a report showed inflation slowed in August.
Italy’s 10-year bond yield climbed 12.5 basis points to 5.18 percent, climbing from a five-month low of 5.04 percent set last week. Yields on Spanish securities of similar maturity increased seven basis points to 5.70 percent.
Food and beverage companies declined the most in Europe while metals producers led gains as the Stoxx Europe 600 Index slipped 0.2 percent. The gauge advanced 2.3 percent last week as ECB President Mario Draghi announced a bond-buying plan aimed at lowering borrowing costs in the euro region.
Xstrata Plc (XTA), the mining company that Glencore International Plc is attempting to acquire, climbed 1.2 percent today. Glencore said Xstrata Chief Executive Officer Mick Davis will step down six months after its planned takeover is completed under the sweetened and final terms of its $36 billion offer. Glencore shares slipped 2.1 percent.
Copper climbed as much as 1.5 percent to $3.70 a pound, the highest since May. China is the biggest buyer of the metal. Gold fell the most in more than three weeks, slipping 0.5 percent to $1,731.80 an ounce, as a stronger dollar curbed demand for the metal as an alternative investment.
In China, inbound shipments declined 2.6 percent in August from a year earlier, the customs bureau said in Beijing today. That missed the median estimate of a 3.5 percent gain, according to economists surveyed by Bloomberg. Imports rose 4.7 percent in July from a year earlier.
Industrial production in the world’s second-largest economy increased the least in three years last month, according to a report from the National Bureau of Statistics yesterday. Production increased 8.9 percent, compared with 9.2 percent in July. The median estimate of economists surveyed by Bloomberg had called for a 9 percent gain.
The MSCI Emerging Markets Index (MXEF) rose 0.1 percent. The Shanghai Composite Index added 0.3 percent, adding to a 3.7 percent surge on September 7, as gauges in Indonesia, Taiwan, Thailand and Turkey gained at least 0.3 percent.
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