Stocks, Commodities Fall as Euro Extends Slump on Greece
Stocks and commodities slid, while the euro extended its longest slump since 2008, as concern that new Greek political leaders will back out of bailout agreements sent the nation’s benchmark equity index to an almost 20-year low.
The Standard & Poor’s 500 Index slipped 0.4 percent to close at 1,363.72 at 4 p.m. in New York. The index pared a loss of as much as 1.6 percent after holding for most of the day above 1,350, a technical level watched by traders. Greece’s ASE index plunged 3.6 percent to close at the lowest level since November 1992. Copper and oil lost at least 1 percent as the S&P GSCI Index of commodities wiped out most of its 2012 gain. The euro fell a seventh day, losing 0.3 percent to $1.3013. Ten-year Treasury yields fell to a three-month low.
Speculation that Greece’s new government will reject terms of its financial rescue grew as New Democracy leader Antonis Samaras said he failed to form a coalition following the weekend elections, passing the opportunity to Alexis Tsipras’s Syriza party. Tsipras said he plans to form a government of left-wing parties that would nationalize banks, repeal recent labor reforms and cancel the bailout accords.
“The situation in Europe could get worse before it gets better,” said James McDonald, chief investment strategist at Northern Trust Corp. in Chicago. His firm manages $715 billion. “The concern is about the potential that Greece does not carry through on their agreements and they default and leave the euro. While investors have known Greece is going to be challenged to handle their debt load, it’s another thing to watch unfold.”
Rebound From 1,350
The S&P 500 dropped for the fourth time in five days, extending its retreat from a four-year high last month to 3.9 percent. Consumer-discretionary, financial and commodity companies led losses among eight of the 10 main industry groups today.
Hewlett-Packard Co. and Bank of America Corp. dropped more than 2 percent to lead the Dow Jones Industrial Average (INDU) down 76.44 points to 12,932.09, paring losses after sliding as much as 198 points. The S&P 500 dipped below 1,350, a so-called support level being watched by traders, for only about 15 minutes this morning.
“We found support for the S&P 500 at 1,350 where you would have expected it to be,” said Michael Shaoul, chairman of Marketfield Asset Management in New York, which oversees more than $1.6 billion. “Once that held you’ve seen a willingness to buy the dip in the U.S. market in names that people have become comfortable with.”
McDonald’s Corp. retreated 2.1 percent after April sales trailed analysts’ projections. Electronic Arts Inc. (EA), the second-largest U.S. video-game publisher, declined 4.3 percent as its forecasts fell short of estimates. Fossil Inc., owner of the namesake watch brand, plunged 38 percent after the company reduced its full-year earnings forecast amid weakness in Europe.
The 10-year U.S. Treasury note yield fell for the third straight day, losing three basis points to 1.84 percent after dipping as low as 1.81 percent, the lowest level since February 3. The government sold $32 billion of three-year notes today, the first of three sales this week totaling $72 billion.
Investors in Treasuries reduced bets the securities will advance and raised neutral positions to the highest in a month, according to a weekly survey by JPMorgan Chase & Co.
The proportion of “net longs” was cut to zero from six percentage points last week as the level of outright longs dropped to equal the level of outright shorts, which was unchanged at 17 percent. A long position is a bet that an asset will increase in value, while a short is a wager it will decrease.
The Stoxx Europe 600 Index slid 1.7 percent, erasing yesterday’s gain, as six shares fell for each that gained. Automakers, mining and financial-services companies led the retreat. National Bank of Greece tumbled 8.4 percent. Bankia SA slid 4.8 percent in Madrid as El Confidencial said the Spanish government will nationalize the lender. Royal KPN NV rallied 17 percent as America Movil SAB (AMX) offered 2.6 billion euros ($3.4 billion) to increase its stake.
The euro fell 0.4 percent versus the yen. The Dollar Index, which tracks the U.S. currency against those of six trading partners, climbed 0.3 percent, advancing for the seventh consecutive day in its longest rally since 2010. The so-called Aussie weakened against 12 of its 16 major peers after the nation reported a larger-than-estimated trade deficit.
Greece will probably leave the euro as soon as next month as the government runs out of cash and European institutions fail to lend more to the nation, according to John Taylor of hedge fund FX Concepts LLC.
“This summer I think is very likely,” Taylor, founder and chief executive officer of FX Concepts in New York, said today in an interview on Bloomberg Television’s “Inside Track” with Erik Schatzker. “The Europeans aren’t going to give them the money, the International Monetary Fund’s not going to give them an OK. They will be out of money in June.”
Tsipras told his pro-bailout counterparts they must renounce support for the European Union-led rescue if there is to be any chance of forging a coalition. Tsipras said he expected Antonis Samaras of New Democracy and Evangelos Venizelos, the former finance minister who leads the Pasok party, to send a letter to the EU revoking pledges to implement austerity measures by the time he meets with them tomorrow. Samaras said he would not do so, and would support a minority government if necessary.
Greece’s Parliament is split down the middle on the bailout deals negotiated with the EU and IMF.
“We’ve de-stabilized Greece politically and now we’re all surprised they can’t take the decisions to do what we want them to do,” Carl Weinberg, chief economist at High Frequency Economics, told Bloomberg Television. “If Greece falls out of compliance with the IMF program and goes into a hard default, that will raise questions about the capital base of the ECB, put a burden on the other governments of Europe, and that will trigger a series of events that I think won’t have a very happy ending.”
Oil in New York declined 1 percent to $97.01 a barrel in New York, falling for a fifth day in its longest slump in three months, after Saudi Arabian Oil Minister Ali al-Naimi said prices are too high. Copper sank 2.5 percent to $3.6775 a pound as 17 of 24 commodities tracked by the S&P GSCI declined, sending the gauge down 0.6 percent and trimming its 2012 advance to 0.6 percent.
The MSCI Emerging Markets Index sank 1 percent as benchmark indexes in Mexico, India and Brazil lost at least 1.4 percent. The Hang Seng China Enterprises Index of Chinese stocks listed in Hong Kong slid 0.5 percent as residential land sales dropped 92 percent in major Chinese cities.
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