Stocks Drop With Metals as Alcoa Fuels Growth Concern

Global stocks fell for a third day and metals retreated as Alcoa (AA) Inc.’s reduced aluminum-demand forecast fueled concern that Chinese growth is slowing. Treasuries erased losses as a $21 billion auction drew a lower- than-forecast yield, while oil reversed earlier gains.

The MSCI All-Country World Index slipped 0.6 percent at 4 p.m. in New York and the Standard & Poor’s 500 Index was down 0.6 percent at 1,432.63, its lowest level in a month. Aluminum slid more than 2 percent, while oil tumbled 1.2 percent after rallying 1.4 percent earlier. Ten-year yields, which climbed to as high as 1.75 percent before the auction, were down three basis points at 1.68 percent.

Energy and raw-material producers led losses in the S&P 500 after Alcoa said China’s slowing growth will cut global demand for aluminum, while Chevron Corp. said profit fell “substantially” from the previous quarter. The International Monetary Fund said European banks may need to shrink assets if policy makers fall short of pledges to stem the fiscal crisis. Spain’s debt rating was cut to one level above junk by S&P, which cited mounting economic and political risks.

“It’s going to be an imbalanced earnings season,” Chad Morganlander, a Florham Park, New Jersey-based fund manager at Stifel Nicolaus & Co., which oversees about $138 billion in client assets, said in a telephone interview. “But the overall theme that will be echoed from management will be of a more conservative nature, which could throw a wet blanket on the recent market rally.”

Growing ‘Modestly’

The S&P 500 (SPX) has fallen 2.3 percent from an almost five-year high reached on Sept. 14 after the Federal Reserve announced plans to buy $40 billion in mortgage securities a month in an attempt to boost growth.

Benchmark equity indexes remained lower today after the Fed said that the U.S. economy was expanding “modestly” last month, supported by improvements in housing and auto sales, even as the labor market showed little change.

Consumer spending was generally reported to be flat to up slightly since the last report,” the Fed said in its Beige Book business survey, which is based on accounts from the 12 district Fed banks. Conditions in manufacturing were “somewhat improved,” according to the report, which provides anecdotal evidence on the health of the economy two weeks before the Federal Open Market Committee meets in Washington on Oct. 23-24.

Market Movers

Alcoa, the first company in the Dow Jones Industrial Average to report results for last quarter, lost 4.7 percent. Alcoa reduced its forecast for global aluminum-consumption growth this year by one percentage point to 6 percent, overshadowing earnings and sales that beat analysts’ estimates. Chevron retreated after saying production slowed because of Hurricane Isaac.

FedEx Corp. advanced after setting a goal to boost profit by $1.7 billion. Yum! Brands Inc. and Costco Wholesale Corp. rallied after profit beat analyst estimates and Wal-Mart Stores Inc. (WMT) rose to a record after saying its back-to-school sales were “very strong.”

Third-quarter profits and sales for the S&P 500 probably fell in unison for the first time in three years, according to analysts’ forecasts compiled by Bloomberg. Earnings at S&P 500 companies probably slipped 1.7 percent last quarter, snapping a three-year streak of growth, as declines of more than 21 percent in energy and commodity company profits overshadow growth in income at banks.

Copper and aluminum demand in China will get support from construction until at least the middle of next year, and then the wave is “set to crash by 2014,” Goldman Sachs Group Inc. analyst Max Layton said in a report.

Metal Prices

Aluminum fell 2.2 percent to a one-month low of $2,008 a metric ton in London. Lead dropped 2.4 percent and nickel and zinc declined at least 1.4 percent. West Texas Intermediate oil reversed earlier gains, losing 1.2 percent to $91.25 a barrel after surging 3.4 percent yesterday amid conflict between Turkey and Syria.

Gasoline at the pump in California fell from a record as Valero Energy Corp. began making a cheaper blend of fuel at refineries near San Francisco and Los Angeles. Regular gasoline at the pump slid to $4.666 a gallon today from the all-time peak of $4.671 a gallon, according to data from AAA, the nation’s largest motoring organization.

Thirty-year bond rates decreased four basis points to 2.88 percent, while two-year yields were little changed at 0.26 percent.

Treasury Auction

Today’s $21 billion auction of 10-year notes had a bid-to- cover ratio, which gauges demand by comparing total bids with the amount of securities offered, of 3.26 versus 2.85 in September and an average of 3.11 for the prior 10 sales. Benchmark 10-year yields declined from the highest level in more than two weeks as Spain’s Prime Minister Mariano Rajoy, struggling to contain the country’s deficit, met in Paris with French President Francois Hollande.

Spain was lowered two levels to BBB- from BBB+, New York-based S&P said in a statement after the close of U.S. markets. S&P assigned a negative outlook on the nation’s debt. The downgrade comes after Spain announced a fifth austerity package in less than a year and published details of stress tests of its banks. Rajoy is weighing a second bailout amid a deepening recession.

Bill Gross, manager of the world’s biggest bond fund, reduced his holdings of Treasuries for a third consecutive month to the lowest level since last October on concern record U.S. debt will lead to inflation.

Fund Holdings

The proportion of U.S. government and Treasury debt in Pacific Investment Management Co.’s $278 billion Total Return Fund dropped to 20 percent of assets in September from 21 percent the prior month, according to data released on the Newport Beach, California-based company’s website. Mortgages remained his largest holding at 49 percent. Pimco doesn’t comment directly on monthly changes in its mutual funds.

The Stoxx Europe 600 Index lost more than 0.5 percent, extending this week’s slump to almost 2 percent. Anheuser-Busch InBev NV slipped 1.2 percent after a report that the U.S. may block its $20 billion takeover of Grupo Modelo SAB. BAE Systems Plc fell 1.4 percent after abandoning plans to merge with European Aeronautic, Defence & Space Co. Imagination Technologies Group Plc lost 9.4 percent as analysts recommended selling the shares.

In European bond markets, 10-year Spanish yields decreased two basis points to 5.80 percent and rates on Italy’s debt were little changed at 5.11 percent.

The yen strengthened against 13 of 16 major peers, erasing earlier declines triggered when Japanese Prime Minister Yoshihiko Noda said his government will act against any disorderly gains in the currency.

‘Disorderly Moves’

“We have to observe the market closely to see whether there are excessive or disorderly moves” in the currency market, Noda said in an interview with Bloomberg News at his office in Tokyo. The yen’s strength is a “serious problem,” is out of step with Japan’s economic performance and “when necessary, we will take decisive action,” he said.

The yen strengthened 3 percent over the past six months, the best performance among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar slipped 0.4 percent and the euro weakened 2.3 percent in the same period.

The MSCI Emerging Markets Index fell 0.5 percent to the lowest in two weeks, on concern the debt crisis in Europe will hurt exporters’ earnings. South Korea’s KOSPI slumped 1.6 percent as Samsung Electronics Co. dropped 3.4 percent, the biggest laggard by index points. The Shanghai Composite Index in China rose 0.2 percent.

Chinese wholesale auto deliveries, including multipurpose and sport-utility vehicles, fell 0.3 percent to 1.32 million units last month, the China Association of Automobile Manufacturers said in a statement. That compared with the 1.35 million average estimate of nine analysts surveyed by Bloomberg.

To contact the reporters on this story: Michael Shanahan in London at mshanahan3@bloomberg.net; Inyoung Hwang in New York at ihwang7@bloomberg.net

To contact the editor responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net

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