Stocks Drop With Commodities While U.S. Treasuries Gain

U.S. stocks fell as concern about the federal budget debate wiped out an earlier rally led by retailers after Home Depot Inc.’s earnings bolstered confidence in the housing market. Treasuries rose while commodities slid.

The Standard & Poor’s 500 Index closed down 0.4 percent at 1,374.53 at 4 p.m. in New York after a 0.6 percent morning rally. Yields on 10-year U.S. notes lost two basis points to 1.59 percent, while the dollar strengthened against 13 of 16 major peers. The S&P GSCI Index of commodities dropped 0.2 percent as declines in coffee, gold and oil overshadowed a surge in natural gas to a one-year high.

A majority of Americans expect the U.S. to go over the so- called fiscal cliff at the beginning of 2013 and would blame Republicans if it happens, according to a poll published today. Concern about the automatic spending cuts and tax increases, triggered if a budget deal isn’t reached, has weighed on stocks since voters re-elected President Barack Obama and Republicans held control of the House following last week’s elections.

“The market waits to see what Congress and the administration will do on the fiscal cliff,” said Tom Mangan, who helps oversee about $3.6 billion as a money manager at James Investment Research Inc. in Xenia, Ohio. “The market will react to each soundbite coming out of Washington,” he said. “In the absence of the macro issues, Home Depot would have led the market higher by a large amount.”

Yield Curve

Treasury 10-year note yields touched a two-month low of 1.57 percent earlier as trading resumed after the Veterans Day holiday. The yield curve, or difference in rates on two-year and 10-year debt, narrowed to the least since August in a sign that investors anticipate slower economic growth.

The S&P 500 is down almost 4 percent since the Nov. 6 elections set up a showdown between Obama and the Republican- controlled House of Representatives over the budget. The Democratic president meets leaders from both parties in Congress this week. Lawmakers need to reach a deal in order to avert $607 billion in spending cuts and tax increases starting in January, an outcome that many economists predict would cause a recession.

A survey by the Pew Research Center and the Washington Post found 51 percent of those polled said they don’t think Obama and Congress will be able to agree on a package to replace the automatic measures agreed to in previous negotiations. Thirty- eight percent said they expected Obama and Congress to cut a deal.

The economy is already being damaged by concern about the budget, said Brian Moynihan, president and chief executive officer of Bank of America Corp.

‘Number One Issue’

“The impacts of the potential cliff are already being felt,” Moynihan said at a Bank of America conference today. In a survey of chief financial officers, “the number one issue they see is the fiscal cliff. They tell us it’s affecting their business plan. That uncertainty continues to hold back the recovery. Simply put, our clients tell us they will not be aggressive in times of uncertainty.”

Technology and financial shares led declines among the 10 main industries in the S&P 500 today, falling at least 0.7 percent as groups. Microsoft Corp. slumped 3.2 percent to a 10- month low as Steven Sinofsky, a 23-year veteran who ran the Windows division, left the company.

JPMorgan Chase & Co. and PNC Financial Services Group Inc. lost 1.3 percent and 2.4 percent respectively to pace a drop in banks. AK Steel Holding Corp. slid 18 percent, the most in four years, as it forecast a wider-than-expected fourth-quarter loss with a decline in prices for the last three months of the year.

A gauge of retailers in the S&P 500 had the biggest gain among 24 groups, rising 1 percent as Home Depot jumped 3.6 percent to the highest price since April 2000.

Commodities Slip

Coffee, heating oil and Brent crude oil lost at least 1 percent to lead declines in 15 of 24 commodities in the S&P GSCI Index. New York-traded oil slipped 0.2 percent to $85.38 a barrel after the International Energy Agency reduced demand estimates and U.S. inventories were forecast to reach a three- month high. Coffee futures tumbled the most since July, losing 4.4 percent, on signs of abundant global supplies.

Natural gas surged to a one-year high in New York, rising 4.7 percent to $3.739 per million British thermal units, on speculation that U.S. inventories will drop for the first time this season as below-normal temperatures spur fuel demand.

The dollar and yen rose versus most major peers after euro- area policy makers gave Greece two extra years to lower its budget deficit. The euro touched two-month lows against the dollar and Swiss franc as European finance ministers struggled to agree on how to provide additional aid for Greece. Brazil’s real weakened against 13 of 16 major peers on bets the central bank will continue to intervene.

European Markets

The Stoxx Europe 600 Index (SXXP) finished 0.4 percent higher, reversing a 0.8 percent drop. Italian and Spanish lenders rallied as Intesa Sanpaolo SpA jumped 5.2 percent after reporting that operating profit surged in the third quarter. EON AG slumped 12 percent after Germany’s biggest utility lowered its earnings forecast for 2013. Vodafone Group Plc slid 2.5 percent in London after the world’s second-largest mobile-phone company took a $9.4-billion writedown for its operations in Spain and Italy.

Ten-year Spanish yields fell four basis points to 5.85 percent, erasing an earlier seven-point gain, amid speculation the nation will ask for a bailout.

“There are rumors that a bailout for Spain is imminent and that has pushed bond yields down,” said Arnaud Scarpaci, a fund manager at Agilis Gestion SA in Paris, which oversees about $77 million. “That explains the violent rebound in stocks.”

Greek Talks

European shares also recovered as Greek Finance Minister Yannis Stournaras told a European Parliament hearing that yesterday’s euro-area meeting was “constructive” and he expects an accord to be reached on rescue funding at a Nov. 20 meeting.

Euro finance chiefs left unanswered how they’ll fill a fresh hole in Greece’s balance sheet without tapping their own bailout-weary taxpayers for money after giving the country two extra years to trim its budget deficit.

In the latest compromise in three years of crisis fighting, creditors led by Germany opted late yesterday to keep money flowing to Greece instead of risking a default that could lead to the nation’s exit from the euro and stir more turmoil for the countries that remain in the single-currency bloc.

German Confidence

German investor confidence unexpectedly declined in November, according to a report from the ZEW Center for European Economic Research in Mannheim. Its index of investor and analyst expectations fell to minus 15.7 from minus 11.5 in October. Economists forecast an increase to minus 10, according to the median of 43 estimates in a Bloomberg News survey.

Emerging market stocks fell for a fourth day, the longest streak since August. Energy and technology companies led losses amid speculation China will expand a property tax trial. Gerdau SA, Latin America’s largest steelmaker, snapped a two-day rally as Centrais Eletricas Brasileiras SA, Brazil’s state-run power utility, plummeted to an eight-year low. OAO Gazprom, Russia’s biggest company, sank 3.6 percent to the lowest since May. Evergrande Real Estate Group Ltd. and Poly Property Group Ltd. retreated in Hong Kong.

China’s housing ministry is on “high alert” if both transaction volume and home prices increase “substantially,” Xinhua News Agency reported, citing Minister of Housing and Urban-Rural Development Jiang Weixin.

The MSCI Emerging Markets Index (MXEF) lost 0.7 percent as the Shanghai Composite Index (SHCOMP) dropped 1.5 percent, while Taiwan’s Taiex slid 1.8 percent with trading volume 31 percent higher than the 30-day average. South Korea’s Kospi Index slipped 0.6 percent.

To contact the reporters on this story: Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.net; Michael P. Regan in New York at mregan12@bloomberg.net

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

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