Stocks, Treasury Yields Drop on U.S. Outlook
A trader works on the floor of the New York Stock Exchange in New York. Photographer: Jin Lee/Bloomberg
Aug. 2 (Bloomberg) -- Timothy Bitsberger, managing director at BNP Paribas and a former assistant secretary for financial markets at the U.S. Treasury, talks about the outlook for Treasuries and the U.S. debt-limit compromise. Bitsberger speaks with Deirdre Bolton, Adam Johnson and Sara Eisen on Bloomberg Television's "InsideTrack." Neil Barofsky, former special inspector general for the Troubled Asset Relief Program and a Bloomberg Television contributing editor, also speaks. (Source: Bloomberg)
Aug. 2 (Bloomberg) -- John Taylor, founder and chief executive officer of FX Concepts, discusses the prospects for the dollar to remain the world's reserve currency, the outlook for the euro and his investment strategy. Taylor speaks with Betty Liu and Dominic Chu on Bloomberg Television's "In the Loop." (Source: Bloomberg)
Aug. 2 (Bloomberg) -- Bob Parker, senior adviser at Credit Suisse Asset Management, discusses the outlook for a U.S. credit-rating downgrade. Parker, speaking with Francine Lacqua on Bloomberg Television's "On the Move," also talks about gold prices, currency markets and the risk of a global double-dip recession. (Source: Bloomberg)
Aug. 2 (Bloomberg) -- Bryn Jones, a fund manager at Rathbone Unit Trust Management Ltd., talks about the U.S. debt ceiling and the possibility of a credit-rating downgrade. He speaks with Linzie Janis on Bloomberg Television's "Countdown." (Source: Bloomberg)
Aug. 2 (Bloomberg) -- Hans-Guenter Redeker, head of global currency strategy at Morgan Stanley, discusses the outlook for the Japanese yen and investment in European bonds. He speaks from London with Maryam Nemazee on Bloomberg Television's "The Pulse." (Source: Bloomberg)
Stocks slid, dragging the Standard & Poor’s 500 Index to its longest slump since 2008 and sending European shares to a 10-month low, while Treasuries rose amid concern the economic recovery is in jeopardy and the euro region’s debt crisis is spreading. Commodities retreated.
The S&P 500 fell for a seventh straight day, losing 0.9 percent to 1,275.17 at 10:59 a.m. in New York, and the Stoxx Europe 600 Index declined 1.6 percent. Yields on 10-year Treasuries dropped to as low as 2.67 percent and the Swiss franc advanced against all 16 of its most-traded peers. Ten-year Italian and Spanish bond yields touched euro-era records and gold reached an all-time high of $1,643.70 an ounce.
Investors sought the safety of Treasuries and the Swiss currency as the U.S. Senate prepared to vote on raising the debt limit before a possible default. Attention has shifted to weakening economic data, including today’s 0.2 percent decrease in consumer spending, the slowest growth in personal incomes since November and a report yesterday that showed American manufacturing sank to a two-year low.
‘Stubbornly Slow’
“We have a stubbornly slow economy,” Hank Smith, chief investment officer at Haverford Trust Co. in Radnor, Pennsylvania, said in a telephone interview. His firm manages about $6.5 billion. “The economy is stuck in a very slow growth mode, which means that it’s more susceptible to any external shocks,” he said. “There’s still concern about Europe. It would be good to get the U.S. debt-ceiling situation off the table.”
Today’s retreat brought the S&P 500 to within 2 percentage points of its low for the year on March 16. All 10 industry groups fell, led by industrial companies. Archer Daniels Midland Co., the world’s largest grain processor, tumbled 4.4 percent as earnings trailed projections after corn and tax expenses rose. MetroPCS Communications Inc., the pay-as-you-go mobile-phone carrier, lost 33 percent as sales fell short of analysts’ forecasts.
The 10-year Treasury yield declined five basis points to 2.70 percent, the lowest since November. The difference between two- and 10-year yields shrank to 2.36 percentage points, the narrowest since December, as demand reduced the extra yield investors require to hold longer-maturity debt.
Jobs Outlook
Investors also looked ahead to the government’s employment report at the end of the week. The nation is forecast to have added 85,000 jobs in July, according to the median estimate of economists surveyed by Bloomberg, and the unemployment rate is projected to hold steady at 9.2 percent.
"Maybe we’ll get a positive number on Friday, but I wouldn’t be shocked if we got a negative one, and I don’t see any strong job growth at all for the next few months until we get a little bit of momentum in terms of final demand," David Kelly, the chief market strategist at JPMorgan Funds, said in a Bloomberg Television interview. "The first half of this year the U.S. economy grew by eight-tenths of 1 percent. Now you need to have sustained growth of one-and-a-half percent even to produce positive payrolls."
Eight stocks fell for each that gained in the Stoxx 600. Pandora A/S plunged 67 percent as the Danish maker of charm bracelets cut its forecast and Chief Executive Officer Mikkel Vendelin Olesen quit. Metro AG, Germany’s largest retailer, slid 6.4 percent as earnings missed estimates.
Franc Rallies
The Swiss franc strengthened more than 1.5 percent to a record 1.09877 per euro and appreciated 1.4 versus the dollar. The Dollar Index, which tracks the U.S. currency against those of six trading partners, was little changed.
The yield on the Italian 10-year bond jumped as much as 25 basis points to 6.25 percent, driving the extra yield investors demand to hold the securities instead of benchmark German bunds to a euro-era record 3.84 percentage points. The Spanish 10-year yield surged as much as 26 b asis points to 6.46 percent, also the highest since the euro was introduced in 1999.
“In this U.S.-versus-Europe ugly contest, it’s hard to decide where to start from,” analysts at BNP Paribas wrote in a research note. “The economic slowdown is blatantly obvious in the large drop in U.S. manufacturing. And the issue of a U.S. downgrade remains open. Things are looking less comfy in Europe too, with Italy spreads again under severe pressure.”
Credit-default swaps tied to Spain’s debt surged 21 basis points to 411 and Italy jumped 28 to 361, according to CMA. The Markit iTraxx SovX Western Europe Index of contracts on 15 governments jumped 13 basis points to 290, approaching the record closing price of 306.5 set July 18.
Commodities Gain
The Standard & Poor’s GSCI index of 24 commodities advanced 0.4 percent, snapping a four-day retreat. Silver, coffee and gold climbed more than 1 percent to lead gains among 15 of 24 materials tracked by the index.
The Australian dollar slid more than 1 percent versus the greenback and the yen after the central bank kept its benchmark interest rate unchanged, citing an “acute sense of uncertainty in global financial markets.” Reserve Bank Governor Glenn Stevens held the overnight cash rate target at 4.75 percent in Sydney for a record eighth-straight meeting.
The MSCI Emerging Markets Index lost 1.3 percent, the steepest drop since July 12. South Korea’s Kospi Index (KOSPI) fell 2.4 percent, the most since May 23. The Shanghai Composite Index declined 0.9 percent after an official Xinhua News Agency website said China may boost borrowing costs next week. The Bombay Stock Exchange Sensitive Index dropped 1.1 percent after Reserve Bank of India Governor Duvvuri Subbarao said yesterday that interest rates would have to rise further.
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