U.S. Stocks Slump as Treasuries Climb With Brent on Iraq

Photographer: Brendan Smialowski/AFP/Getty Images

Nuri al-Maliki, Iraq's prime minister, right, and John Kerry, U.S. Secretary of State, meet at the Prime Minister's Office in Baghdad, on June 23, 2014. Kerry told reporters after the talks that U.S. support “will be intense, sustained, and if Iraq’s leaders take the necessary steps to bring the country together, it will be effective.” Close

Nuri al-Maliki, Iraq's prime minister, right, and John Kerry, U.S. Secretary of State,... Read More

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Photographer: Brendan Smialowski/AFP/Getty Images

Nuri al-Maliki, Iraq's prime minister, right, and John Kerry, U.S. Secretary of State, meet at the Prime Minister's Office in Baghdad, on June 23, 2014. Kerry told reporters after the talks that U.S. support “will be intense, sustained, and if Iraq’s leaders take the necessary steps to bring the country together, it will be effective.”

U.S. stocks fell, reversing earlier gains, and Treasuries advanced amid concern over escalating violence in Iraq as investors gauged the strength of the global economy. Oil held near the highest levels since September.

The Standard & Poor’s 500 Index slid 0.6 percent to 1,949.98 at 4 p.m. in New York, after earlier climbing 0.3 percent to a record. The Dow Jones Industrial Average lost 0.7 percent, the most in a month. Treasury 10-year yields fell five basis points to 2.58 percent. Brent crude added 0.3 percent while West Texas Intermediate slipped 0.1 percent. The Stoxx Europe 600 Index lost 0.2 percent. The MSCI Emerging Markets Index advanced 0.4 percent. Dubai’s benchmark gauge tumbled 6.7 percent after entering a bear market yesterday.

Equities reversed gains as the Wall Street Journal reported that Syrian warplanes struck targets in a western Iraqi province. Stocks rose earlier after data showed purchases of new U.S. homes rose more than economists forecast in May, while consumer confidence increased this month. German business confidence dropped more than estimated in June amid signs of slower growth.

“If we were ordering the list of our international concerns today, the unpredictable nature of the Middle East would be number one,” Phil Orlando, chief equity market strategist at Federated Investors, said in an interview at Bloomberg headquarters in New York. He helps oversee around $400 billion.

Iraqi Talks

U.S. Secretary of State John Kerry met officials of Iraq’s semi-autonomous Kurdish region in his bid to prod leaders to unite against an al-Qaeda offshoot that has seized control over swaths of the country. The U.S. says sectarian divisions have helped the militants consolidate control over areas of Iraq, OPEC’s second-biggest oil producer, since capturing Mosul on June 10.

Kerry’s talks came amid battles to control a key refinery at Baiji, north of Baghdad, the site of almost two weeks of fighting, and clashes along Iraq’s borders with Syria and Jordan. Syrian warplanes killed at least 50 people in the western Iraqi province of Anbar where the al-Qaeda splinter group, the Sunni Islamic State in Iraq and the Levant, has made gains, the Journal reported.

Brent oil increased 34 cents, or 0.3 percent, to end the session at $114.46 a barrel on the London-based ICE Futures Europe exchange. Futures touched $115.71 on June 19, the highest since Sept. 9. West Texas Intermediate oil slipped, settling above $106 a barrel for the eighth time in nine days. A government report tomorrow is projected to show that U.S. crude supplies fell a fourth week.

Oil’s Strength

“The strength of the oil market is a reflection of the continuing fighting in Iraq,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “ISIL forces continue to advance and we’re getting conflicting news about the Baiji refinery. If not for the troubles in Iraq we would be looking at lower prices.”

The S&P 500 is up 7.4 percent since a low on April 11 as data showed the economy is recovering from extreme weather and the first drop in first-quarter gross domestic product since 2011. The government’s third revision to the GDP reading, due tomorrow, is expected to show a contraction of 1.8 percent, according to a Bloomberg survey of economists.

Home Sales

Sales of new homes increased 18.6 percent, the biggest one-month gain since January 1992, to a 504,000 annualized pace, figures from the Commerce Department showed today. Home prices in 20 U.S. cities rose at a slower pace than forecast in the year ended in April, separate data showed.

The Conference Board’s index of U.S. consumer confidence increased to 85.2 in June from 82.2 a month earlier, the New York-based private research group said today.

“The rebound after the bad winter seems to be progressing, the outlook for unemployment is a bit better, and the inflation rate appears to be firming,” Plosser said in remarks prepared for a speech to the Economic Club of New York. “Current data suggest economic strength is fairly broad-based.”

Fed Chair Janet Yellen last week said accommodative monetary policy, rising property and equity prices and the improving global economy should lead to above-trend growth.

Fed policy makers on June 18 trimmed bond buying by $10 billion for the fifth straight meeting, to $35 billion per month, while reiterating that they plan to keep the main rate close to zero. The stimulus has helped propel the S&P 500 higher by as much as 191 percent from a bear-market low in 2009.

Volatility Index

The Chicago Board Options Exchange Volatility Index, or VIX (VIX), a measure of S&P 500 options prices, gained 10 percent to 12.13 today for its largest advance since April 10. The gauge is still down 12 percent for the year, trading near its lowest level since 2007.

The index trades at 16.5 times the projected earnings of its members, close to its highest valuation in four years.

“It makes sense to take a breather with high valuations, tension in Iraq, and people still waiting to see whether economic growth and U.S. companies have recovered from a weak first quarter,” said Heinz-Gerd Sonnenschein, a strategist at Deutsche Postbank AG in Bonn, Germany. “There may be a bit more nervousness, but markets have been quite stable and volatility remains very low.”

Treasuries rose, led by demand for longer-maturity securities, as concern that turmoil in the Middle East is escalating renewed the refuge appeal of U.S. government debt. The Treasury sold $30 billion in two-year notes at the highest yield since May 2011 as investors begin to price in interest-rate increases next year.

U.K. Rates

Bank of England Governor Mark Carney damped speculation of a rate increase, telling lawmakers there’s “more spare capacity in the labor market than we had thought” and that the timing of any interest-rate increase “will be driven by the data.” The comments came less than two weeks after he indicated the BOE’s benchmark might rise from a record low earlier than investors anticipated.

The pound fell 0.2 percent to $1.6987 after rising to $1.7063 last week, its highest level since October 2008. The Bloomberg Dollar Spot index added 0.1 percent, its first gain in five days.

European stocks slumped as German business confidence fell to the weakest level this year. The Ifo institute’s business climate index, based on a survey of 7,000 executives, declined to 109.7 in June from 110.4 in May. Economists predicted a drop to 110.3, according to the median of 40 estimates in a Bloomberg News survey.

“The fall in the Ifo is a signal that the eurozone’s growth engine is slowing down,” said Witold Bahrke, who helps oversee $55 billion as a senior strategist at PFA Asset Management in Copenhagen. “German businesses as of now are quite unimpressed by measures taken by the European Central Bank.”

European Economy

The euro area is struggling to sustain a recovery that received a bleak assessment from the International Monetary Fund June 20. Earlier this month, the European Central Bank introduced a negative deposit rate, announced targeted loans to stimulate lending and held out the prospect of asset purchases to stoke growth and inflation in the 18-nation region.

Dubai stocks tumbled as turmoil at the United Arab Emirates’ largest-listed builder, Arabtec Holding Co., prompted the biggest selloff since August. Arabtec dropped 9.8 percent to the lowest since February after the company confirmed it cut staff.

The ruble gained 0.7 percent to the strongest level against the dollar since January, and the Micex Index of stocks jumped 2.2 percent.

President Vladimir Putin asked lawmakers in Moscow to rescind the authorization they gave him on March 1 to use force in Ukraine. Pro-Russian rebels in Ukraine shot down a government helicopter in violation of a cease-fire.

To contact the reporters on this story: Joseph Ciolli in New York at jciolli@bloomberg.net; Mark Shenk in New York at mshenk1@bloomberg.net

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

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