Stocks, Spanish Bonds Drop as Treasuries, Yen Strengthen

By Stephen Voss and Rita Nazareth - Apr 11, 2012 3:31 AM GMT+0700

Stocks slid, extending the longest slump for the Standard & Poor’s 500 Index since November, as a surge in Spanish and Italian bond yields fueled concern Europe’s debt crisis is worsening. Treasuries and the dollar advanced.

The S&P 500 fell for a fifth day, losing 1.7 percent to close at 1,358.59 at 4 p.m. in New York, and the Dow Jones Industrial Average lost 213.66 points. The Stoxx Europe 600 Index (SXXP) decreased 2.5 percent as national benchmark indexes tumbled 5 percent in Italy and about 3 percent in Spain and France. Ten-year U.S. Treasury yields slid below 2 percent, while Spanish yields approached 6 percent for the first time this year and Italian yields surged 23 basis points. The yen rose versus all 16 peers and the dollar climbed against 13. Copper led commodities lower and oil sank to an eight-week low.

Spanish bonds tumbled as Economy Minister Luis de Guindos declined to rule out a rescue for the nation as 10 billion euros ($13 billion) of additional budget cuts failed to alleviate investor concerns. Analysts project that profits at non- financial S&P 500 (SPX) companies grew last quarter at the slowest rate since 2009 as companies from McDonald’s Corp. to 3M Co. saw gains in the world’s largest economy eroded by a slump in Europe.

“The surge in Spanish yields puts the European debt crisis back on U.S. investors’ radar screens, front and center,” Mohamed El-Erian, the chief executive officer of Pacific Investment Management Co., said in an e-mail today. Last week’s lower-than-forecast growth in U.S. payrolls “has eroded investor confidence about America’s self-sustaining ability to overcome headwinds from Europe.”

Earnings Season

Consumer-discretionary, financial and industrial companies tumbled more than 2 percent to lead losses among all 10 of the main industry groups in the S&P 500 today as General Electric Co., Walt Disney Co. and Bank of America Corp. slid at least 2.4 percent to pace declines. Best Buy Co., the world’s largest electronics retailer, slumped 5.9 percent as Chief Executive Officer Brian Dunn resigned.

Alcoa Inc. (AA) retreated 2.9 percent before the biggest U.S. aluminum producer became the first company in the Dow to announce first-quarter earnings. The shares surged 5.6 percent in extended trading following the close of exchanges in New York as Alcoa reported an unexpected profit after customers from automakers to beverage-can manufacturers ordered more of the lightweight metal.

Earnings from S&P 500 companies, excluding financials, are seen gaining 0.6 percent in the first and the second quarter from a year earlier, according to analysts’ estimates compiled by Bloomberg, the slowest growth rate since 2009.

Five-Day Slump

The S&P 500 has slumped 4.3 percent in five sessions after closing at an almost four-year high on April 2. All 10 of the main industry groups have retreated during the stretch, led by declines of more than 5.4 percent in industrial, commodity and financial stocks.

The Chicago Board Options Exchange Volatility Index advanced today for a record eighth straight day. The gauge known as the VIX, which measures the cost of options to protect against losses in the S&P 500, rose 8.4 percent to 20.39 and has surged 32 percent since March 28.

“I don’t think there’s any rush to be involved in the stock market here,” James Swanson, who oversees about $250 billion as chief investment strategist at Boston-based MFS Investment Management, said in a telephone interview. “Europe is a temporary concern. The market is signaling they haven’t fixed the whole problem. This will be a soft quarter in earnings. Investors will need more reassurance.”

Economy Concern

Federal Reserve Chairman Ben S. Bernanke said in a speech yesterday that the U.S. was still “far from having fully recovered.” Most European markets were open today for the first time after the U.S. Labor Department’s monthly tally of U.S. hiring missed the median economist projection by 85,000 jobs on April 6.

Copper tumbled 1.9 percent to a 12-week low of $3.65 a pound, while wheat and natural gas also slid to lead declines in 20 of 24 commodities tracked by the S&P GSCI Index, which tumbled 1.5 percent. Oil tumbled 1.4 percent to $101.02 a barrel amid forecasts that U.S. supplies rose to the highest level for this time of year since 1990.

The Stoxx 600 dropped to the lowest level since Jan. 30 as all 19 industry groups retreated, led by banks. Italian lenders UniCredit SpA, Intesa Sanpaolo SpA and Banca Popolare Di Milano Scarl dropped more than 6.5 percent. Vedanta Resources Plc led a retreat in mining companies as copper fell in London and the metal producer reported lower iron-ore sales. SBM Offshore NV (SBMO) lost 12 percent as the world’s biggest supplier of floating oil and gas output platforms said some sales practices “may have been improper.”

German, Spanish Bonds

The yield on the German two-year note fell to 0.091 percent, while the five-year note yield dropped to 0.617 percent, both the lowest on record, according to data compiled by Bloomberg.

The slump in Spanish bonds drove the difference in yield, or spread, with German 10-year bunds, the region’s benchmark government securities, to 4.33 percentage points, the most since November. The Italian 10-year yield rose 23 basis points to 5.69 percent, sending the spread over bunds to 4.04 percentage points, the most since Jan. 31 on a closing basis.

Spain Concerns

Spanish Prime Minister Mariano Rajoy yesterday unexpectedly announced a 10 billion-euro package of budget cuts in education and health, less than two weeks after unveiling the most austere budget in more than three decades. Rajoy is targeting basic public services for the first time since his election in December in a bid to convince investors he can bring order to the nation’s finances.

Bank of Spain Governor Miguel Angel Fernandez Ordonez said the nation’s lenders may need additional capital if the economy weakens more than expected.

Switzerland sold 182-day bills at an average yield of minus 0.251 percent, according to the nation’s central bank. About 710 million francs were allotted, it said.

“We have a renewed concern in the euro region as the debt problem hasn’t gone away despite the liquidity support from the European Central Bank,” said Vincent Chaigneau, the global head of interest-rate strategy at Societe Generale SA in Paris. “The poor non-farm payroll data out of the U.S. only exacerbated the risk-off sentiment. Peripheral bond yields are likely to continue to rise in the near term.”

Emerging Markets

The MSCI Emerging Markets Index (MXEF) retreated 1 percent to the lowest level since Jan. 30 on a closing basis. The Hang Seng China Enterprises Index (HSCEI) of Chinese stocks listed in Hong Kong lost 1.4 percent. China reported an unexpected trade surplus last month as inbound shipments increased 5.3 percent, below the 9 percent median estimate in a Bloomberg survey. The Shanghai Composite Index (SHCOMP) gained 0.9 percent on speculation the government will take measures to boost the economy.

The yen appreciated 1 percent against the dollar and climbed 1.2 percent versus the euro, rising against both for the fifth consecutive day. The Swiss franc was little changed at 1.20158 against the euro after it strengthened through the 1.20 per euro ceiling during yesterday’s trading day, the second time the cap was breached since being established by the nation’s central bank on Sept. 6.

To contact the reporters on this story: Stephen Voss in London at sev@bloomberg.net; Rita Nazareth in New York at rnazareth@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net