Stocks DropStocks Fall, Euro Drops on Crisis Concerns
ByNikolaj Gammeltoft and Victoria Stilwell-Jul 11, 2011 5:53 PM ET
Riot police clash withstudents protesting against economic measures on public school budgetson November 25, 2010 in Bologna, Italy. Photographer: RobertoSerra/Iguana Press/Getty Images
July 11 (Bloomberg) --Jacques Cailloux, chief European economist at Royal Bank of ScotlandPlc, talks about the risk of contagion from the European sovereign debtcrisis.He speaks with Maryam Nemazee on Bloomberg Television's "ThePulse." (Source: Bloomberg)
July 11 (Bloomberg) --Gary Jenkins, head of fixed-income at Evolution Securities Ltd., talksabout possible solutions for the Greek debt crisis and Italian bondyields.He speaks with Francine Lacqua on Bloomberg Television's "On theMove." (Source: Bloomberg)
July 11 (Bloomberg) --Andrew Bosomworth, a fund manager at Pacific Investment Management Co.,talks about the European sovereign debt crisis and the U.S. debt ceilingdebate.He speaks from Munich with Francine Lacqua and Owen Thomas onBloomberg Television's "Countdown." (Source: Bloomberg)
July 11 (Bloomberg) -Arjuna Mahendran, Asian head of investment strategy at HSBC PrivateBank, talks about the global economy and financial markets.Mahendran speaks from Singapore with John Dawson on BloombergTelevision's "First Up." (Source: Bloomberg)
July 11 (Bloomberg) --Barry Ritholtz, chief executive officer of FusionIQ, talks about theoutlook for the U.S. stock market and investor sentiment.Ritholtz speaks with Deirdre Bolton on Bloomberg Television's"InsideTrack." (Source: Bloomberg)
July 11 (Bloomberg) --Stephen Gallo, head of market analysis at Schneider Foreign Exchange,talks about concern Europe's debt crisis will spread and the need forregulators to develop an "orderly" default contingency.Gallo speaks with Betty Liu, Dominic Chu and Sara Eisen onBloomberg Television's "In the Loop." (Source: Bloomberg)
Stocks sank the most since Marchwhile Spanish 10-year bond yields topped 6 percent for the firsttime since 1997 amid concern Europe’s debt crisis will spread.The euro tumbled, while U.S. Treasuries rallied.
The MSCI All-Country World Index of shares in 45 nationstumbled 2.1 percent, the most in four months, as of 5 p.m. inNew York. The Markit iTraxx SovX Western Europe Index of defaultswaps jumped to an all-time high as Italy’s stock index tumbledto the lowest level in two years. The euro sank 1.7 percent to$1.4029 and reached the weakest price since May. Oil fell 1.1percent while yields on 10-year Treasuries posted the biggesttwo-day drop in more than a year.
European finance chiefs clashed over how to dig Greece outof its financial hole just as markets battered the bonds ofSpain and Italy, opening a new front in the debt crisis. AlcoaInc. (AA) began the second-quarter earnings season, reporting afterU.S. markets closed that profit more than doubled. PresidentBarack Obama said he won’t agree to a short-term extension ofthe government’s debt limit and plans to continue meeting withmembers of Congress every day until an agreement is reached.
“The size of Italy’s economy makes sovereign credit issuesthere a much greater concern,” said Gary Flam, who helpsoversee $6.5 billion at Bel Air Investment Advisors. “Greece,Portugal and Ireland are manageable given the small size ofthose economies relative to the EU. Once you cross the thresholdinto Spain and Italy, you’re taking a big step up. That’s amajor negative.”
S&P 500 Retreat
The Standard & Poor’s 500 Index retreated 1.8 percentafter advancing 5.9 percent between June 24 and July 8, thebiggest two-week rally since October 2009. The index lost 0.7percent July 8 after American employers added 83 percent fewerjobs in June than economists forecast. U.S. equities haverebounded after the S&P 500 lost 3.2 percent in May and June.
Alcoa slipped 2.9 percent in regular trading beforereporting earnings, becoming to first Dow Jones IndustrialAverage company to do so for the second quarter. Earningsexcluding items were 32 cents a share, missing the 33-centaverage estimate of 14 analysts surveyed by Bloomberg. Salesincreased 27 percent to $6.59 billion, exceeding the averageestimate of $6.31 billion from seven analysts.
Alcoa shares slipped to $15.82 at 5:48 p.m. in New Yorkafter closing at $15.91.
Profits at companies in the S&P 500 will rise 13 percent inthe second quarter, according to analyst estimates compiled byBloomberg, the smallest gain in two years.
Biggest Losses
Financial, raw-materials and energy companies led lossesamong all 10 industry groups in the S&P 500, with Citigroup Inc.losing 5.3 percent, JPMorgan Chase & Co. (JPM) down 3.2 percent andExxon Mobil Corp. (XOM) 0.6 percent lower. Companies reliant oneconomic growth have tumbled in the last two days after rallyingduring the past three weeks.
News Corp. (NWSA) slid 7.6 percent, the biggest drop in the S&P500, to $15.48. The media company’s 7.8 billion-pound ($12.4billion) bid for pay-TV operator British Sky Broadcasting GroupPlc (BSY) faces a review by the top U.K. competition authority thatwill take at least six months as a probe into phone hackingwidens.
The 10-year U.S. Treasury yield dropped 10 basis points toless than 3 percent for the first time since June 28. The yieldshave dropped 21.9 basis points over the past two days.
The euro weakened 1.7 percent to a near a record low versusthe Swiss franc. The dollar rallied versus 14 of 16 major peers,climbing the most against the Swedish krona, Norwegian krone andSouth African rand.
Oil, Cotton
Crude oil in New York fell 1.1 percent to $95.15 a barreland copper dropped 1.4 percent in New York. The S&P GSCI indexof 24 commodities retreated 0.8 percent, led by a 4.4 percentdecline in cotton. Orange juice lost as much as 2.4 percent, itsbiggest decline since March 21. Gold rose to a two-week high,advancing 0.8 percent to $1,554 an ounce.
President Obama held a press conference in Washingtontoday, his fifth public remarks on debt in a week, as he urgedRepublican leaders to compromise on their opposition to taxincreases and achieve “the largest possible deal” to cut thedeficit. Obama resumed talks this afternoon with bipartisancongressional leaders toward a compromise on reducing deficitsand raising the $14.3 trillion federal debt ceiling before thegovernment exhausts its borrowing authority on Aug. 2.
The extra yield investors demand to hold Italian andSpanish 10-year bonds instead of German bonds rose to thehighest since the euro was introduced in 1999.
Italy, Greece
Credit-default swaps protecting Italian bonds rose 55 basispoints to an all-time high of 301, while contracts on Spainjumped 28 basis points. The yield on Italy’s 10-year bondclimbed 41 basis points to 5.68 percent, the highest in morethan a decade. Yields on Spain’s 2-year bond increased 43 basispoints to 4.14 percent. Greek yields jumped 76 basis points to29.72 percent, and its default swaps climbed 143 basis points.
“Both Italy and Spain are starting to look morevulnerable,” said Niels From, chief analyst at Nordea Bank ABin Copenhagen. “The fear is that this is going to continue asthe market starts focusing on the larger euro-region nations.”
The yield on 10-year German bonds declined 16 basis pointsto 2.67 percent.
European leaders are prepared to accept that Greece shoulddefault on some of its bonds as part of a new bailout plan forthe country that would put its debt levels on a sustainablefooting, the Financial Times reported, citing unidentifiedsenior officials. The European Central Bank is seeking advicefrom a private lender on what to do in the event of a default inthe euro area, Handelsblatt said, without citing anyone.
End the Uncertainty
The EU has “got to put an end to the uncertaintysurrounding Greece and the contagion impact that that ishaving,” Andrew Bosomworth, a fund manager at PacificInvestment Management Co., which runs the world’s biggest bondfund, said in an interview with Owen Thomas and Francine Lacquaon Bloomberg Television’s “Countdown.”
The Stoxx Europe 600 Index fell 1.4 percent. Ageas, theinsurer formerly known as Fortis, and EFG Eurobank Ergasias SA,Greece’s second-biggest bank, led losses among financial shares,sliding more than 7.9 percent. Italian stocks fell to the lowestlevel in two years, with declines in lenders UniCredit SpA andBanca Sanpaolo Intesa SpA helping to push the benchmark FTSE MIBindex down 4 percent.
The MSCI Emerging Markets Index dropped 1.8 percent, itsbiggest decline in three weeks. The Hang Seng China EnterprisesIndex retreated 2 percent, while Russia’s Micex Index sank 1.3percent and India’s Bombay Stock Exchange Sensitive Indexslipped 0.7 percent. Turkey’s lira weakened 1.2 percent againstthe dollar after data showed the current-account deficit morethan doubled in May from a year earlier.
To contact the reporters on this story:Nikolaj Gammeltoft in New York atngammeltoft@bloomberg.net;Victoria Stilwell in New York atvstilwell@bloomberg.net
To contact the editor responsible for this story:Nick Baker atnbaker7@bloomberg.net