Stocks Extend Three Weeks of Losses as U.S. Budget Talks Stall; Euro Falls

By Stephen Kirkland and Shiyin Chen - Nov 21, 2011 7:09 PM GMT+0700
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Traders watch their screens at the stock market in Frankfurt, Germany. The benchmark Stoxx Europe 600 Index lost 1.7 percent to 228.21 at 8:36 a.m. Photographer: Michael Probst/AP Photo

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Nov. 21 (Bloomberg) -- Andy Lynch, a fund manager at Schroder Investment Management Ltd., talks about the outlook for equities. He talks with Francine Lacqua on Bloomberg Television's "On the Move." (Source: Bloomberg)

Stocks fell, extending three weeks of losses, U.S. index futures declined and Treasuries rose as U.S. lawmakers failed to agree on budget cuts. The euro weakened as French, Spanish and Italian bonds dropped.

The MSCI All-Country World Index sank 1.2 percent at 7:05 a.m. in New York, set for its first six-day slump since August. S&P 500 futures lost 1.7 percent. The yield on the 10-year U.S. Treasury note fell five basis points to 1.96 percent, while the cost of insuring against default on European government debt approached a record high. The euro depreciated 0.6 percent to $1.3442, while the Dollar Index rose 0.5 percent. Australia’s currency declined against 14 of its 16 major peers. Copper and oil retreated for a third day.

The U.S.’s deficit-cutting congressional supercommittee is expected to announce today it has failed to reach agreement on at least $1.2 trillion in federal budget savings, a Democratic aide said. Japan’s exports fell, Singapore said growth will probably slow and Germany’s Finance Ministry said the country’s expansion is “noticeably slower” this quarter. France’s rising financing costs are increasing the nation’s fiscal challenges, according to report issued by Moody’s Investors Service today.

The U.S. “story is unlikely to fully knock Europe off the front pages but it has ramifications for the fiscal outlook over the next couple of years,” Jim Reid, a strategist at Deutsche Bank AG in London, wrote in a research note. “If the automatic cuts are activated then the U.S. will be going through the same austerity that has not proved particularly successful so far in Europe with regards to growth.”

Mining Stocks

The Stoxx Europe 600 Index sank 2.5 percent, extending last week’s 3.7 percent decline, as more than 40 stocks dropped for every one that rose. All 19 industries in the benchmark measure retreated more than 1 percent, with the gauge for mining stocks falling 4.4 percent. Novartis AG fell 2.1 percent after Chief Executive Officer Joe Jimenez predicted that economic conditions will worsen further.

The decline in U.S. futures indicated the S&P 500 will extend last week’s 3.8 percent decline. A report at 10 a.m. in Washington may show that sales of previously owned homes in the U.S. dropped 2.2 percent in October, a second month of falling property values.

Treasury Auction

The yield on the two-year Treasury note was unchanged at 0.28 percent as the government prepared to sell $35 billion of the securities today, the first of three auctions this week totaling $99 billion.

France’s 10-year bond yield jumped three basis points and Spain’s yield increased 16 basis points. The Italian yield advanced five basis points, leaving the difference in yield with benchmark German bunds 13 basis points wider at 481 basis points. The French-bund spread rose 11 basis points to 161, and the spread for Spain increased 24 basis points to 465.

The Markit iTraxx SovX Western Europe Index of credit- default swaps on 15 governments rose six basis points to 357.5, compared with an all-time high of 362 reached on Nov. 15.

The cost for European banks to fund in the U.S. currency climbed to the highest since December 2008. The three-month cross-currency basis swap, the rate banks pay to convert euro payments into dollars, increased to 132 basis points below the euro interbank offered rate, from 130 at the end of last week.

The euro depreciated 0.7 percent versus the yen, while the Japanese currency rose against all its major counterparts. The Dollar Index, which tracks the currency against those of six U.S. trading partners, snapped a two-day decline. The Australian dollar slumped 1.3 percent against the greenback, and slid 1.4 percent versus the yen.

Commodities Retreat

Copper sank 2.5 percent, zinc tumbled 1.9 percent and lead retreated 1.7 percent. West Texas Intermediate oil for January delivery slid 1.3 percent to $96.12 a barrel in New York.

The MSCI Emerging Markets Index sank 2.3 percent, set for its lowest close since Oct. 20. Russia’s Micex Index slid 4 percent and the Hang Seng China Enterprises Index of Chinese companies listed in Hong Kong lost 2.3 percent. India’s Sensex fell 2.6 percent. KGHM Polska Miedz SA (KGH), Poland’s sole copper and silver producer, led stocks lower in Warsaw on a government plan to increase taxes on the extraction of the metals.

Egypt’s benchmark EGX 30 Index (EGX30) slumped 3.1 percent to the lowest intraday level since Oct. 10 after clashes between protesters and security forces in several cities.

To contact the reporter on this story: Stephen Kirkland in London at skirkland@bloomberg.net; Shiyin Chen in Singapore at schen37@bloomberg.net;

To contact the editor responsible for this story: Stuart Wallace at swallace6@bloomberg.net