By Rita Nazareth - Nov 23, 2011 8:46 PM GMT+0700
U.S. stock futures fell, indicating the Standard & Poor’s 500 Index will drop a sixth day, as the cost of insuring European government debt against default rose to a record on concern the region’s crisis is worsening.
Bank of America Corp. (BAC) and Citigroup Inc. (C) slumped at least 1.5 percent. Mosaic Co. (MOS) and Halliburton Co. (HAL) slid more than 1.1 percent, pacing losses in commodity producers. Deere & Co. (DE) rallied 6.2 percent as the world’s largest farm-equipment maker reported profit that topped analysts’ estimates.
S&P 500 futures expiring in December retreated 0.8 percent to 1,173.80 at 8:45 a.m. New York time. The benchmark gauge for American equities tumbled 5.6 percent over the previous five days. Dow Jones Industrial Average futures declined 77 points, or 0.7 percent, to 11,370 today.
“There’s a lot of negativity,” Uri Landesman, who helps oversee more than $1 billion as managing general partner of New York-based hedge fund Platinum Partners LLP, said in a telephone interview. The rise in bond yields in Europe shows that “everybody thinks they are going bust. I’m hoping this is a sign that everybody is so negative that the odds are the next move is going to be positive. When everybody thinks the world is coming to an end, that’s the time you buy the market.”
The debt crisis that began more than two years ago now risks engulfing Germany. The Markit iTraxx SovX Western Europe Index of credit-default swaps on 15 governments rose to an all- time high as Germany failed to find buyers for 35 percent of the bonds offered at an auction. European services and manufacturing output contracted and a preliminary gauge indicated China’s manufacturing shrank by the most since March 2009.
U.S. Economy
Equity futures maintained losses after reports indicated more signs of a slowing economy. Consumer spending in the U.S. rose less than forecast in October. Orders for durable goods fell in October as demand for aircraft and business equipment cooled, while more Americans than forecast filed for unemployment benefits last week.
Stocks tumbled yesterday, driving the S&P 500 to its longest slump in almost four months, as slower-than-estimated economic growth overshadowed signs the Federal Reserve may provide more stimulus.
Concern about a global financial crisis sent financial stocks lower. Bank of America lost 1.7 percent to $5.28, while Citigroup decreased 1.5 percent to $24.09. Both are among lenders that may have to temper plans to raise dividends and buy back stock next year as the Federal Reserve toughens capital tests for the biggest U.S. banks.
‘Severe’ Recession
The Fed imposed a tougher capital test on the 31 largest U.S. banks yesterday, releasing the criteria for measuring their wherewithal if the U.S. economy sours and major trading partners default on their debt. Lenders need to prove they have the capital to withstand a “severe” U.S. recession with 13 percent unemployment and an 8 percent decline in gross domestic product before they can increase dividends or repurchase shares.
The more pessimistic scenario will damp banks’ ambitions to return more capital to shareholders, whose holdings have been decimated. The KBW Bank Index (BKX) of 24 U.S. lenders has plunged 31 percent this year and is down 70 percent from its all-time high in February 2007.
“It’s going to be very difficult for any of these companies to do any major buybacks into next year,” said Paul Miller, a former examiner for the Federal Reserve Bank of Philadelphia and an analyst at FBR Capital Markets Corp. in Arlington, Virginia. Bank of America and Citigroup’s “chances of upping a dividend or buying back any stock next year are almost zilch.”
Commodity Shares
Some energy and raw materials producers sank as the dollar rose, reducing the appeal of commodities as alternative investments. Mosaic retreated 1.1 percent to $51.30. Halliburton fell 1.3 percent to $33.25.
Deere rallied 6.2 percent to $76.35 as it also forecast 2012 earnings that topped projections. The company, led by Chief Executive Officer Sam Allen, has benefited as U.S. farmers used cash from rising corn and soybean prices to buy high-horsepower equipment. U.S. farm income will jump 31 percent this year to a record $103.6 billion, the U.S. Department of Agriculture said in August. In fiscal 2010, 65 percent of Deere’s sales came from the U.S. and Canada.
To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net
To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net
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