By Michael P. Regan and Inyoung Hwang - Nov 18, 2011 4:54 AM GMT+0700
Nov. 17 (Bloomberg) -- Barry Knapp, head of U.S. equity strategy at Barclays Capital, talks about U.S. economic data and its impact on the stock market. Knapp, speaking with Betty Liu and Dominic Chu on Bloomberg Television's "In the Loop," also discusses the outlook for the European debt crisis and the congressional supercommittee's effort to draft a deficit-reduction proposal. (Source: Bloomberg)
U.S. stocks and commodities slid and the euro erased an earlier gain as concern grew that Europe’s debt crisis will worsen and lawmakers will fail to agree on plans to cut the American deficit. Treasuries gained.
The Standard & Poor’s 500 Index lost 1.7 percent to close at 1,216.13 at 4 p.m. in New York, with losses accelerating as it fell below levels watched by traders including its average over the past 100 days. The euro was little changed at $1.3459 after climbing as much as 0.6 percent. The S&P GSCI Index of commodities slid 2.9 percent, the most since September, as silver and gasoline tumbled at least 4.5 percent.
Stocks and commodities extended declines after Reuters reported a euro-area official as saying there are no plans for aid for Italy from the European Financial Stability Facility. Republicans and Democrats on Congress’s supercommittee hardened their positions with less than a week until the deadline to propose a plan to cut the deficit.
“It’s just a combination of everything we have been hearing the last two days,” Thomas Garcia, head of equity trading at Santa Fe, New Mexico-based Thornburg Investment Management Inc., which oversees about $75 billion, said in an e- mail. “It’s hard to get excited about a market where there are so many negative macro headlines. Concern over the supercommittee, concern about support for Italy -- the headlines just keep coming.”
Market Leaders
Declines in stocks accelerated after the S&P 500 slipped below 1,229.10, its closing level on Nov. 9 after that day’s 3.7 percent plunge. The S&P 500 also dropped below its 100-day average of 1,226.
Gauges of commodity producers, technology companies and financial firms dropped more than 2 percent to lead declines among all 10 of the main industry groups in the S&P 500. Alcoa Inc., JPMorgan Chase & Co. and American Express Co. lost at least 3 percent to lead the Dow Jones Industrial Average down 134.86 points, or 1.1 percent, to 11,770.73.
Jefferies Group Inc. fell 2 percent, paring a loss of as much as 8 percent. The investment bank’s Chief Executive Officer Richard Handler said yesterday in an e-mail that turmoil around the company’s shares and publicly traded debt will ease as the fallout dissipates from the collapse of MF Global Holdings Ltd.
Some of MF Global’s commodity customers can get an immediate distribution of $520 million, or about 60 percent of their cash collateral, a judge ruled. U.S. Bankruptcy Judge Martin Glenn today approved a request to transfer the funds from James Giddens, the trustee overseeing the liquidation of the brokerage.
‘Running to Cash’
All but four of the 24 commodities tracked by the S&P GSCI Index fell. Oil retreated back below $100 a barrel, falling 3.7 percent to $98.82 after surging to as high as $103.37 earlier. Silver futures tumbled 6.9 percent to $31.497 an ounce.
The dollar strengthened against 11 of 16 major peers and the Dollar Index rose for a fourth straight day, rising 0.4 percent to 78.293. Gains in U.S. Treasuries sent the 10-year yield down four basis points to 1.97 percent.
“People are running to cash,” said Alec Levine, an equity derivatives strategist at Newedge Group SA in New York. “The markets, not the policymakers, are controlling events right now and that’s a very dangerous place to be. We’re seeing every type of assets in the world being sold right now except for Treasuries.”
Swap Spreads
Two-year swap spreads, based in part on expectations for dollar Libor and used as a gauge of bank creditworthiness, climbed to 52.61 basis points today, exceeding the highest closing level in more than two years. Financial stocks led losses yesterday after Fitch Ratings said U.S. banks face a “serious risk” that their creditworthiness will deteriorate if Europe’s debt crisis deepens and spreads beyond the five most- troubled nations.
Concern about European debt markets and another potential impasse in Washington overshadowed better-than-estimated U.S. economic data that limited losses in stocks in early trading.
Applications for jobless benefits decreased 5,000 in the week ended Nov. 12 to 388,000, the lowest level in seven months, Labor Department data showed. Housing starts decreased 0.3 percent to a 628,00 annual rate in October, according to the Commerce Department, topping the median estimate of economists surveyed by Bloomberg News for a drop to 610,000. Building permits, a proxy for future construction, jumped 10.9 percent.
Supercommittee Negotiations
In Washington, pressure is mounting for both parties to agree on a proposal so the debt committee can vote by its Nov. 23 deadline. Failure to enact by year’s end a plan that would cut at least $1.2 trillion over the next decade would force that amount in automatic spending cuts beginning in 2013. Democrats oppose reductions in entitlement programs such as Medicare sought by Republicans, unless Republicans agree to larger increases in tax revenue.
"That is the basic problem we’ve had in the market for more than a year now, the brinksmanship in Washington," Keith Bliss, director of sales and marketing for Cuttone & Co., told Bloomberg Television in an interview at the New York Stock Exchange.
The euro rose earlier after the European Central Bank bought Italian debt as part of its effort to tame the debt crisis, sending the nation’s 10-year yield below the 7 percent level that foreshadowed bailouts for Greece, Ireland and Portugal.
Monti Confidence
Italian Prime Minister Mario Monti won a confidence vote in the Senate today after laying out a program to attack the euro region’s second-biggest debt and spur economic growth. The nation’s credit rating may be cut to low investment grade if it loses market access to funding and Italy’s economy may already be in a recession, Fitch Ratings said.
European stocks retreated after French and Spanish borrowing costs climbed at auctions today, spurring concern about contagion. BNP Paribas SA and Societe Generale SA led a sell-off in banks, both dropping at least 3.9 percent as dollar funding costs for European lenders climbed to a three-year high. Mining companies tumbled with metal prices.
Spain sold 3.56 billion euros ($4.8 billion) of 10-year bonds at 6.975 percent, while France sold 3.33 billion euros of 2016 notes yielding 2.82 percent. Demand at Spain’s auction was 1.54 times the amount sold, the lowest since 2008, according to data compiled by Bloomberg.
Spanish, French Bonds
Yields on existing 10-year Spanish debt climbed eight basis points to 6.49 percent. Their spread above rates on benchmark German bunds was little changed after climbing to as high as 4.99 percentage points during the day. French bonds reversed losses, with 10-year yields down eight basis points at 3.64 percent. Earlier, their spread above German bunds rose to more than 2 percentage points for the first time in the history of the euro.
German Chancellor Angela Merkel said that neither joint euro-area bonds nor using the ECB as a lender of last resort offer solutions to the debt crisis at present.
“The crisis is being driven by systemic causes and until that systemic weakness has been addressed, all euro government bonds aside from bunds will continue to come under pressure,” said Richard McGuire, a fixed-income strategist at Rabobank
The MSCI Emerging Markets Index slid 0.8 percent. Brazil’s Bovespa declined 2.7 percent, retreating from a one-week high, while Chile’s benchmark fell 1.8 percent. The Bombay Stock Exchange Sensitive Index decreased 1.9 percent. The WIG20 Index sank 1.6 percent in Warsaw and the Micex Index slumped 0.5 percent in Moscow.
To contact the reporters on this story: Michael P. Regan in New York at mregan12@bloomberg.net; Inyoung Hwang in New York at ihwang7@bloomberg.net
To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net
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