U.S. Stocks Fall on Economy as Treasuries Pare Early GainStephen Kirkland and Oliver Renick
U.S. stocks fell the most in three weeks along with European equities as the World Bank cut its global growth forecast. Treasuries pared gains after a 10-year notes auction while wheat entered a bear market.
The Standard & Poor’s 500 Index declined 0.4 percent to 1,943.94 at 4 p.m. in New York, after halting a four-day streak of record closes yesterday. The Stoxx Europe 600 Index lost 0.6 percent, falling from a six-year high. Ten-year Treasuries rose for the first time in four days. Wheat fell 2 percent, extending losses from a May peak to 20 percent amid rising grain supplies. Iraq’s 2028 Eurobond slid the most in a year after fighters from a breakaway al-Qaeda group took control of Mosul.
The World Bank cited weaker outlooks for the U.S., China and Russia as it lowered the forecast for global growth to 2.8 percent from 3.2 percent in January. U.S. House Majority Leader Eric Cantor lost to a Tea Party-backed candidate in yesterday’s primary in Virginia, fueling concern about further gridlock in Washington.
“Maybe some market participants are only now waking up to reality after the World Bank report,” Raimund Saxinger, a fund manager at Frankfurt-Trust Investment GmbH, which oversees about $22 billion, said in a phone interview. “Markets have been a little overstretched to the upside.”
The S&P 500 slipped less than one point yesterday, halting a four-day rally, as investors considered equity valuations. The gauge trades at 16.4 times the projected earnings of its members, up from a multiple of 14.8 -- its lowest valuation this year -- at the beginning of February. The gauge has rallied 7 percent since a low on April 11.
Investors are also considering the long-range market repercussions from Cantor’s loss. The seven-term House veteran was an ally for Wall Street on issues ranging from the 2008 Troubled Asset Relief Program to defending the Export-Import Bank.
“There were very few folks who expected this,” Michael Block, chief strategist at New York-based Rhino Trading Partners LLC, said. “I’m not concerned about the debt ceiling, but some are and I will say Cantor was good at finding compromises relative to the rest of the party.”
Since Republicans took control of the House in 2011, debates over the debt limit -- the total amount of money the U.S. government can borrow to finance existing obligations such as Social Security and Medicare -- led to eleventh-hour showdowns that raised concerns that the government could default on its obligations, roiling financial markets. Congress voted in February to suspend the limit until March 15, 2015.
Cantor’s defeat raises concerns about the future of political compromise, Goldman Sachs Group Inc. Chief Executive Officer Lloyd Blankfein said.
“I hope it doesn’t mean that it will be impossible from this point forward to compromise on issues like the budget, immigration policy,” Blankfein said in a television interview with CNBC today. “This is not necessarily a good signal but we’ll have to see how this plays out.”
Boeing Co. sank 2.3 percent, the most in two months, as Cantor’s defeat threatened congressional reauthorization of low-cost lending that benefits the world’s largest planemaker. Boeing is the “biggest loser” other than Cantor because of the debate surrounding the Export-Import Bank, Guggenheim Securities LLC policy analyst Chris Krueger said in an e-mail.
Bank of America Corp. dropped 2.1 percent after a report said the Justice Department may seek $17 billion to settle probes into mortgage lending. Hilton Worldwide Holdings Inc. slid 2.7 percent after registering to sell 90 million shares held by Blackstone Group LP. CBS Corp. added 1.1 percent after saying it will fully divest its 81 percent stake in CBS Outdoor Americas Inc. H&R Block Inc. rose 4.6 percent after reporting sales that topped analysts’ forecasts.
Treasuries pared gains as the U.S. sold of $21 billion in 10-year notes after yields on the current benchmark security touched a four-week high. The notes drew an auction yield of 2.648 percent, compared with a forecast of 2.633 percent in a Bloomberg News survey of seven of the Federal Reserve’s 22 primary dealers.
Bill Gross, manager of the world’s largest bond fund, said German bund yields at almost the least versus their U.S. peers this millennium was “a magnet” to lower Treasury yields. The U.S. will conclude this week’s sales with a $13 billion auction of 30-year bonds tomorrow.
The 10-year yield fell 1 basis point to 2.63 percent today. Treasuries had been falling since the Labor Department reported June 6 that U.S. employers added more than 200,000 jobs for a fourth month in May.
About four shares fell for every one that gained in the Stoxx 600. Phone companies and travel and leisure stocks declined the most among the gauge’s 19 industry groups.
Deutsche Lufthansa AG, the German airline, tumbled 14 percent after lowering its earnings forecasts for this year and next because of the effect of strikes and the devaluation of Venezuela’s currency. Vallourec SA, which makes pipes for the oil-and-gas industry, lost 11 percent after saying its earnings before interest, taxes, depreciation and amortization would drop 10 percent from their level in 2013.
“This could potentially be the start of a very difficult second quarter for earnings,” said Andrea Williams, who helps manage about 50 billion pounds ($84 billion) as head of European equities at Royal London Asset Management in London. “There’s a big gap between where markets and earnings trends are going.”
The MSCI Emerging Markets Index slipped 0.2 percent. India’s Sensex dropped 0.4 percent. The Shanghai Composite Index rose 0.1 percent. It fell 0.4 percent earlier after MSCI Inc. excluded China’s local shares from its global indexes.
Russia’s Micex gained for a fourth day, adding 0.7 percent. Russia gave Ukraine an extra six days to begin payments in a gas-supply deal with the European Union as the parties prepare to resume talks today in Brussels.
Turkish shares fell 3.3 percent, the most this year, after a news channel said militants from an al-Qaeda splinter group entered the Turkish consulate in Iraq’s second-largest city and took an unspecified number of hostages. Tribal gunmen were close to capturing Baiji, north of Baghdad and home to Iraq’s biggest refinery, Al-Jazeera television said.
Iraq’s 2028 Eurobond fell the most in almost a year, sending the yield 39 basis points higher to 6.84 percent.
Japan’s currency gained amid speculation the Bank of Japan will refrain from expanding stimulus at a meeting this week, diverging from the European Central Bank that unveiled record easing last week.
The yen strengthened 0.3 percent against the dollar and 0.5 percent per euro. Europe’s shared currency slipped 0.2 percent to $1.3527 after dropping to $1.3503 on June 5, the lowest since Feb. 6.
The pound advanced 0.4 percent versus the euro and 0.2 percent against the dollar. The U.K.’s jobless rate dropped to 6.6 percent in the three months to April from 6.8 percent in the first quarter, the Office for National Statistics said. The median estimate in a Bloomberg News survey of 34 economists was 6.7 percent.
Wheat futures tumbled and corn fell to a four-month low as the U.S. government said global supplies will be bigger than analysts estimated. Rising grain supplies are helping to keep global food costs in check, with the United Nations saying that world prices fell in May for the second straight month.
Wheat has slumped 20 percent from a 14-month closing high on May 6, the typical definition of a bear market. The U.S. is the world’s top exporter. Corn futures dropped 0.7 percent to $4.4175 a bushel today.
West Texas Intermediate crude’s discount to Brent widened as supplies at Cushing, Oklahoma, dropped by the least in nine weeks. The Brent-WTI spread rose from the lowest level since April after the Energy Department said supplies at Cushing, the delivery point for WTI futures, dropped 198,000 barrels to 21.2 million last week. Falling inventories at the hub have boosted U.S. prices and narrowed the gap.
WTI was little changed today while Brent gained 0.4 percent on concern that Middle East tension will disrupt supplies.