Stocks Drop on FedEx, Housing Data; Euro, Spanish Bonds Fall
By Elizabeth Stanton and Stephen Kirkland
June 16 (Bloomberg) -- Stocks fell, with U.S. benchmark indexes retreating from four-week highs, on a disappointing earnings forecast at FedEx Corp. and a drop in housing starts. The euro weakened and bonds of Spain, Portugal and Greece sank on concern Europe’s deficits will continue to weigh on growth.
The Standard & Poor’s 500 Index fell 0.3 percent at 10 a.m. in New York after the gauge jumped above its 200-day average yesterday for the first time in almost a month. The Stoxx Europe 600 Index lost 0.1 percent as Nokia Oyj cut the outlook for its devices and services unit. The euro slipped 0.2 percent to $1.2314. The extra yield investors demand to hold Spanish 10- year bonds instead of benchmark German bunds rose to the highest since the euro’s 1999 debut.
Nine of 10 industry groups in the S&P 500 declined as FedEx’s full-year profit outlook and the biggest drop in housing starts since March 2009 overshadowed better-than-estimated growth in industrial production. Spanish Prime Minister Jose Luis Rodriguez Zapatero announces a labor-law overhaul today to tame one of Europe’s biggest budget deficits as unions called for a general strike in September, the first in eight years.
“The recovery is not accelerating, it’s decelerating, and there’s reasons for investors to take a step back and evaluate the longevity and magnitude of the recovery,” said David Kovacs, head of quantitative strategies at Turner Investment Partners in Berwyn, Pennsylvania, which manages $19 billion. FedEx “is a barometer of economic activity, and the fact that they missed relative to estimates indicates there are some clouds on the horizon.”
Rally Pared
The S&P 500 pared some of yesterday’s 2.4 percent rally that erased the index’s loss for the year. FedEx, the largest air-cargo carrier, tumbled 1.5 percent after forecasting annual profit that may trail the average analyst estimates by as much as 67 cents a share.
“I didn’t think when the day ended yesterday that we’d follow through today,” said Stanley Nabi, New York-based vice chairman of Silvercrest Asset Management Group, which manages $9 billion. “Some strategists have reduced their earnings estimates because of the dollar and because economic growth is not going to be as robust as thought, particularly due to the housing market.”
U.S. housing starts fell 10 percent, the biggest decline since March 2009, to a 593,000 annual rate, from a revised 659,000 pace in April that was less than previously estimated, Commerce Department figures showed. Building permits, a sign of future construction, unexpectedly fell to a one-year low. Single-family starts suffered the largest drop since 1991.
Fannie, Freddie Tumble
Fannie Mae and Freddie Mac shares tumbled at least 23 percent after their regulator told the two mortgage-finance companies to delist their stock from the New York Stock Exchange.
The euro dropped 0.5 percent against the Swiss franc and 0.2 percent versus the pound, while slumping 0.7 percent compared with the yen. The 16-nation currency has weakened 14 percent this year against the dollar.
The difference in yield, or spread, between Spanish and German 10-year bunds, Europe’s benchmark government debt securities, widened to as much as 219 basis points, from 206 basis points yesterday, according to Bloomberg generic data. The Portuguese-German spread increased 15 basis points to 293 basis points, and the Greek-German yield difference rose 30 basis points to 671 basis points.
Credit-default swaps on Spanish government debt rose 10 basis points to 256, compared with the record-high closing level of 275 basis points on May 6, according to CMA DataVision.
European Markets
In Europe, Daimler AG led automakers lower, retreating 2.6 percent in Frankfurt. Schroders Plc fell 3.3 percent in London as Citigroup Inc. recommended selling the shares.
BP Plc slipped 0.7 percent to 339.65 pence in London, extending its decline since April 15 to 48 percent and reaching its lowest price in 13 years. U.S. President Barack Obama vowed that the company will pay for all damage caused by its “recklessness” and that the government would commit to restoring the Gulf Coast.
The cost of protecting BP Plc debt for one year rose 432.5 basis points to 1,075, according to CMA DataVision prices for credit-default swaps.
The MSCI Asia Pacific Index rallied 1.1 percent to a four- week high. Toyota Motor Corp., a carmaker that gets about 28 percent of its sales from North America, gained 1.2 percent in Tokyo. Nintendo Co. jumped 5.2 percent in Osaka, Japan, after the company introduced a new handheld video-game player. Markets in Hong Kong, China and Taiwan were closed today for a holiday.
Emerging Markets
The MSCI Emerging Markets Index advanced for a seventh day, increasing 0.5 percent. Romania’s BET Index jumped 2.7 percent, the most worldwide, and the country’s government bonds rallied after Prime Minister Emil Boc survived a no-confidence vote. South Korea’s won led gains in emerging-market currencies, strengthening 1.4 percent against the dollar.
Gold for immediate delivery was little changed at $1,234.45 an ounce. Copper decreased 0.6 percent to $6,643 a metric ton on the London Metal Exchange, the seventh consecutive advance. Crude oil for July delivery on the New York Mercantile Exchange fluctuated near $77 a barrel.
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