N.Z. Signals Rates May Stay at Record Low to 2013 Amid EU Risks

By Tracy Withers - Jun 14, 2012 6:22 AM GMT+0700

New Zealand’s central bank signaled it may keep interest rates at a record low for another year, extending a 15-month pause as weaker growth eases inflation and Europe’s fiscal crisis clouds the outlook.

“It remains appropriate for monetary policy to remain stimulatory, with the official cash rate being held at 2.5 percent,” Reserve Bank of New Zealand Governor Alan Bollard said in a statement in Wellington today. The central bank lowered its forecasts for economic growth in the next three years, citing falling commodity prices and spending restraint.

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Alan Bollard, governor of the Reserve Bank of New Zealand. Photographer: Mark Coote/Bloomberg

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Alan Bollard, governor of the Reserve Bank of New Zealand. Photographer: Mark Coote/Bloomberg

The RBNZ’s next step may depend on what happens in Europe, where a Greek election June 17 will influence whether it exits the euro, causing greater financial-market turmoil. The New Zealand dollar rose after today’s language lacked any specific signal Bollard will reduce borrowing costs, even as interest- rate swaps reflect a 69 percent chance of a cut by September.

“If you were to see a real euro-zone meltdown, that’s going to be reflected through in our forecasts,” Bollard said at a news conference. “Absolutely that would be a core issue we would be thinking about in terms of monetary policy.”

New Zealand’s dollar bought 77.62 U.S. cents at 11:05 a.m. in Wellington compared with 77.30 cents immediately before the statement. There was a 20 percent chance of a rate cut late yesterday, according to interest-rate swaps data compiled by Bloomberg. Today’s decision was forecast by all 16 economists in a Bloomberg News survey.

Bollard’s Exit

Bollard, 61, has announced he won’t seek to extend his term as governor beyond late September, and said today the Sept. 13 policy decision will be his last.

The central bank forecasts the three-month bank bill yield will be 2.7 percent in the first quarter next year, down from 3.1 percent in its March projections, according to the monetary policy statement also published today. The forecasts are seen as a guide to the direction of the cash rate.

The yield will rise to 3.1 percent by the fourth quarter of 2013, and 3.3 percent a year later, the RBNZ said.

The bank bill forecast “is consistent with not having to push the OCR up for some time,” Bollard said.

Fourteen of the economists surveyed by Bloomberg forecast no change in the cash rate until 2013. Two predicted a quarter- point rate rise in December.

“We see little reason to disagree with an outlook that has the RBNZ on hold until some time in 2013, unless the worst case does occur in Europe in which case the RBNZ will be easing policy,” said Darren Gibbs, chief New Zealand economist at Deutsche Bank AG in Auckland.

Quake Damage

Bollard has left the cash rate unchanged since March last year to allow the economy to recover after the nation’s deadliest earthquake in 80 years in Christchurch, its second- largest city, and the surrounding Canterbury province, which killed 185 people and closed the central city.

The recovery has been slow amid concern that Europe’s debt crisis would spill over into weak global demand for exports, which make up 30 percent of New Zealand’s economy.

Unlike counterparts in Australia and China, Bollard hasn’t cut borrowing costs because quake rebuilding is expected to boost growth and stoke inflation in coming years.

“Political and economic stresses in Europe, along with a run of weaker-than-expected data, have seen New Zealand’s trading partner outlook weaken,” he said today. “There is a small but growing risk that conditions in the euro area deteriorate more markedly than is projected. The bank is monitoring euro-area developments carefully given the potential for rapid change.”

Rate Cutting

Australia’s central bank on June 5 cut its overnight cash rate target to 3.5 percent, the lowest since 2009, on concern about Europe’s fiscal problems and slowing Chinese growth. China also last week reduced borrowing costs for the first time since 2008.

New Zealand’s economy is growing at a slower pace than previously projected, reflecting falling commodity prices and modest household consumption, Bollard said. The New Zealand currency has slumped 5.4 percent this quarter after a 5.3 percent gain in the first quarter.

“Increased agricultural production and the weakened global outlook have driven export commodity prices lower,” he said. “The resulting moderation in export incomes although partially offset by depreciation in the exchange rate, will weigh on economic activity.”

Fonterra Cooperative Group Ltd., the world’s biggest dairy exporter, last month said it will pay its New Zealand farmers less for their milk as global prices moderate.

Growth Outlook

The economy will probably grow 2 percent in the year ending March 31, 2013, down from 3.1 percent predicted in the March policy statement, the RBNZ said.

Growth will improve to 3 percent in the 12 months through March 2014, slower than the 3.7 percent pace projected in March, it said. The main impetus to the expansion is coming from residential investment and the Christchurch rebuilding, the central bank said. Growth is forecast to slow to 1.6 percent in the year through March 2015.

Inflation in the year through June will slow to 1.1 percent and accelerate thereafter, the RBNZ forecast. It will reach the midpoint of the 1 percent to 3 percent range that Bollard is required to target by mid-2013, a year earlier than previously projected, after the government announced new tobacco taxes.

“Current spare capacity in the economy will be absorbed as domestic activity increases, leading to some inflationary pressures,” the RBNZ said. “The removal of some monetary stimulus will offset this.”

To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net

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Oil Falls From Eight-Month Low Before OPEC Meets on Production

By Ben Sharples - Jun 14, 2012 8:58 AM GMT+0700

Oil fell from the lowest close in eight months in New York before OPEC meets to discuss production quotas amid speculation the group won’t cut output as the global economy weakens.

Futures declined as much as 0.4 percent today, dropping for the fifth time in six days. The Organization of Petroleum Exporting Countries, which meets in Vienna today, will probably maintain its output ceiling as concern that global growth is shrinking outweighs calls for supply cuts to stem sliding crude prices, three of the cartel’s oil ministers said. U.S. retail sales fell and Spain’s debt rating was cut by Moody’s Investors Service.

“OPEC is the top news at the moment and that’s going to be the driver,” Michael McCarthy, a chief market strategist at CMC Markets Asia Pacific Pty in Sydney, said in a telephone interview. “OPEC is opaque at times and one of the issues that they grapple with, given that they are such a large and global organization, is compliance with quotas.”

Oil for July delivery slid as much as 35 cents to $82.27 a barrel in electronic trading on the New York Mercantile Exchange. It was at $82.37 a barrel, down 25 cents, at 11:55 a.m. Sydney time. The contract fell 0.8 percent yesterday to $82.62, the lowest close since Oct. 6. Prices are down 17 percent this year.

Brent oil for July settlement, which expires today, slipped 23 cents to $96.90 a barrel on the London-based ICE Futures Europe exchange. The more-actively traded August future slid 37 cents to $96.31. The European benchmark contract’s premium to West Texas Intermediate was at $14.52, from $14.51 yesterday.

OPEC Output

Ministers from Ecuador, Kuwait and Nigeria said yesterday that OPEC is set to keep its 30 million barrel-a-day limit. Venezuela, Iran, Iraq, Angola, Ecuador and Libya have argued that crude supplies are excessive.

While an increase of as much as 1 million barrels a day suggested by some Gulf Arab countries would help Europe weather its slowdown, the 12-member group will probably settle on the status quo, according to two Middle Eastern delegates who declined to be identified because a decision hasn’t been made.

The International Energy Agency reduced its forecast for 2012 crude consumption to 89.9 million barrels a day, the Paris- based energy adviser said yesterday. That’s revised down by 100,000 barrels from May and reflects an increase of 820,000 barrels from last year.

U.S. retail sales fell 0.2 percent in May, matching the revised decrease for April, Commerce Department figures showed yesterday in Washington. Spain was cut three steps to Baa3 from A3 by Moody’s, which cited the nation’s increased debt burden, weakening economy and limited access to capital markets.

Oil Stockpiles

U.S. crude-oil supplies dropped 191,000 barrels last week, a report from the Energy Department showed yesterday. They were forecast to slip 1.5 million barrels, according to the median estimate from 12 analysts in a Bloomberg News survey.

Gasoline stockpiles declined 1.7 million barrels, the report showed. They were projected to rise 1.4 million barrels, according to the survey. Distillate inventories, a category that includes heating oil and diesel, slid 63,000 barrels compared with a forecast 1.2 million barrel gain.

Companies operated refineries at 92 percent of capacity last week, up 1 percentage point from the prior week and the highest level since August 2007, the report showed.

Demand for fuels averaged 18.7 million barrels a day over the past four weeks, the Department reported. That’s down 1.9 percent from a year ago. This is “reflecting the ongoing weakness in macro data,” according to a report yesterday from Michael Wittner, global head of oil market research at Societe Generale SA in New York.

To contact the reporter on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net

To contact the editor responsible for this story: Alexander Kwiatkowski at akwiatkowsk2@bloomberg.net

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BSkyB, BT Win Rights to English Soccer Games for Record Amount

By Jonathan Browning and Tariq Panja - Jun 14, 2012 6:00 AM GMT+0700

British Sky Broadcasting Group Plc (BSY) and BT Group Plc (BT/A) won the bidding to show 154 English Premier League soccer matches, paying almost double the current price for the broadcast rights to the sport’s richest domestic competition.

BSkyB’s pay-TV Sky channel will show 116 matches starting in the 2013-14 season, with the phone and broadband company BT getting 38 matches. The sale of the seven packages raises 3.02 billion pounds ($4.7 billion), compared with 1.77 billion in the current pact, the league said yesterday. BT will pay 246 million pounds a season. Walt (DIS) Disney Co.’s ESPN sports channel lost the right to show Premier League matches.

BSkyB, the U.K.’s largest pay-TV broadcaster, in which Rupert Murdoch’s New Corp. owns 39 percent, increased spending to keep the rights to show most matches as it relies on sport broadcasts to lure subscribers. BT, trying to sell more broadband connections, will use the matches to start a new sports channel. The phone company hadn’t broadcast games before.

“It’s a decent commercial increase. We have a competition. It has value,” Premier League Chief Executive Officer Richard Scudamore said at a press conference. “We had numerous bidders in this commercial procedure.”

The new deal means for the first time a broadcaster outside of Sky will show matches between Arsenal, Liverpool, Manchester United and Chelsea. The teams had been known as the ’Big Four’ prior to the emergence of Manchester City and Tottenham. The Premier League has increased the total number of live matches shown to a record in the new contracts, which cover the 2013-14 to 2015-16 campaigns.

Newcomer BT

The previous deal involved 138 matches. BSkyB paid 1.62 billion pounds over three years and ESPN paid the rest.

BSkyB’s Sky Sports channel has held rights to Britain’s top soccer games since the Premier League’s inception in 1992. Rival broadcaster Setanta collapsed in 2009 and paved the way for ESPN, which shares rights to England’s F.A. Cup competition with ITV Plc (ITV) and also screens Italian, German and Dutch league matches.

“Because Sky is now so deeply entrenched, it’s all the more hard for a newcomer to buy their way into the market,” said Tim Westcott, an analyst at IHS Screen Digest.

BT said it will pay a deposit of 22 million pounds this month followed by six installments of 120 million pounds. The phone company kept its outlook for the 12 months through March 2013 while saying that earnings before interest, taxes, depreciation and amortization will be cut by about 100 million pounds and free cash flow by 200 million pounds in the fiscal year through March 2014.

Investments

“BT is already investing 2.5 billion pounds in fiber broadband,” the company’s CEO Ian Livingston said. “Securing Premier League rights fits naturally with this, as consumers increasingly want to buy their broadband and entertainment services from a single provider.”

BT said it expects normalized free cash flow of about 2.5 billion pounds in the 12 months through March 2015.

Sky will pay 760 million pounds a year for the 5 packages of live rights for each of the three years of the new Premier League agreement.

Cost Efficiency

“In what was a very competitive tender process, we are pleased to have secured the combination of rights that we wanted, providing certainty for us and our customers,” said BSkyB CEO Jeremy Darroch. “While the cost is higher, we have capacity for this increase through the combination of excellent work on cost efficiency across the business and choices over other future spending.”

Premier League teams including record 19-time English champion Manchester United, Arsenal, Chelsea and Liverpool draw millions of viewers from around the world. The April 30 match between United and Manchester City was available to more than 650 million homes in 212 territories, according to the league.

“It makes it much easier for everyone, it makes the clubs less reliant on benefactor funding,” Scudamore said.

The existing global rights are worth 1.4 billion pounds, more than some rival leagues make from their domestic contracts.

The bidding forced broadcasters to compete for the different groups of games, including packages that allowed selection of matches between teams near the top of the league, Scudamore said. BT is taking 18 first picks out of total of 38 available.

“BT have secured highly attractive highly competitive games,” Scudamore said. “That’s a game changer.”

In April, BSkyB’s German affiliate Sky Deutschland (SKYD) paid a record 2.5 billion euros ($3.1 billion), a 53 percent increase on the previous contract, to buy Bundesliga soccer rights for the four years through 2017.

The massive increase income will probably lead to a spike in player salaries. All previous revenue increases have been followed by almost an exact rise in player income.

The result is also a boost to English teams’ efforts to meet European soccer governing body UEFA’s new fiscal regulations that from 2014 will penalise clubs that fail to meet its break-even criteria.

To contact the reporters on this story: Jonathan Browning in London at jbrowning9@bloomberg.net; Tariq Panja in London at tpanja@bloomberg.net

To contact the editor responsible for this story: Christopher Elser at celser@bloomberg.net

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Armstrong Says He May Be Stripped of Tour Titles in Doping Probe

By Mason Levinson and Michael Buteau - Jun 14, 2012 5:52 AM GMT+0700

The U.S. Anti-Doping Agency brought doping charges against Lance Armstrong that may cost him his record seven Tour de France titles, the cyclist said.

Armstrong also is banned immediately from competing in triathlons organized by the World Triathlon Corp., which runs the Ironman series, because of the investigation.

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Lance Armstrong during the 2010 Tour de France. Photographer: Nathalie Magniez/AFP/Getty Images

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Armstrong, three doctors and two officials from the cyclist’s former U.S. Postal Service team were notified of the doping allegations yesterday, USADA Chief Executive Officer Travis Tygart said in an e-mailed statement. The letter is the first step in the legal process for alleged doping violations, Tygart said.

“USADA only initiates matters supported by the evidence,” Tygart said. “We do not choose whether or not we do our job based on outside pressures, intimidation or for any reason other than the evidence.”

Armstrong called the charges “baseless.”

“I have been notified that USADA, an organization largely funded by taxpayer dollars but governed only by self-written rules, intends to again dredge up discredited allegations dating back more than 16 years to prevent me from competing as a triathlete and try and strip me of the seven Tour de France victories I earned,” Armstrong said.

The USADA charges, first reported today by the Washington Post (WPO), come after Armstrong’s attorney said the cyclist failed to meet with the agency by June 8, four days after receiving a letter offering him an “opportunity to talk about drug use in cycling.” Robert Luskin, Armstrong’s attorney, wrote in a letter to USADA that the meeting was a “demand wrapped in a threat” seeking Armstrong’s confession.

‘This Charade’

“We will not be party to this charade,” Luskin wrote in the June 8 letter. “Lance has publicly and repeatedly made clear that he never doped.”

Armstrong, who has endorsement agreements with Nike Inc. (NKE), Trek Bicycle Corp. and Oakley Inc., was scheduled to race his first professional full Ironman event June 24 in Nice, France, to try to qualify for the Ironman World Championship in Hawaii on Oct. 13. World Triathlon has an agreement with Armstrong’s Texas-based Livestrong charity.

Comcast Corp. (CMCSA)’s NBC network said last week it planned to air this year’s championship race on Oct. 27, six weeks earlier than usual, and expand the coverage to two hours from 90 minutes. The network said the coverage was expected to focus heavily on Armstrong.

UCI Statement

Cycling’s world governing body, the International Cycling Union or UCI, said in a statement that it had been notified of USADA’s probe. It didn’t identify any of the people involved.

USADA made previously unpublicized allegations against Armstrong, saying it collected blood samples from him in 2009 and 2010 that were “fully consistent with blood manipulation including EPO use and/or blood transfusions,” the Post said. The newspaper cited what it said was a 15-page charging letter that was sent to Armstrong and several others yesterday, a copy of which it obtained.

EPO is the abbreviation for erythropoietin, which can add energy-boosting properties to blood. Doping authorities say that drug, and transfused blood, have been used by athletes in endurance sports such as cycling and cross-country skiing to increase performance.

No Tests

Armstrong never has been publicly identified as testing positive for performance-enhancing drugs. On Feb. 4, the U.S. attorney in Los Angeles ended a criminal drug probe involving Armstrong and his professional bicycle racing team without filing charges.

USADA also alleges that Armstrong and five former cycling team associates engaged in a massive doping conspiracy from 1998 to 2011, the Post said.

“These are the very same charges and the same witnesses that the Justice Department chose not to pursue after a two-year investigation,” Armstrong said in his statement. “These charges are baseless, motivated by spite and advanced through testimony bought and paid for by promises of anonymity and immunity. Although USADA alleges a wide-ranging conspiracy extended over more than 16 years, I am the only athlete it has chosen to charge. USADA’s malice, its methods, its star-chamber practices and its decision to punish first and adjudicate later all are at odds with our ideals of fairness and fair play.”

Tour Streak

Armstrong, 40, won the Tour de France, cycling’s most prestigious event, each year from 1999 to 2005 after surviving testicular cancer that had spread to his brain and lungs.

He also has helped bring more attention to triathlon since he returned to the sport on Feb. 12 in Panama, where he finished second in his first half Ironman 70.3-mile (113-kilometer) race. He won his last two half Ironman events, which feature a 1.2- mile swim, 56-mile bike ride and 13.1-mile run. Armstrong competed as a professional triathlete at 18 before focusing on cycling.

World Triathlon Corp. rules “dictate an athlete is ineligible to compete during an open investigation,” the agency said in an e-mailed statement.

“Armstrong is therefore suspended from competing in WTC- owned and licensed races pending further review,” according to the statement.

To contact the reporter on this story: Mason Levinson in New York at mlevinson@bloomberg.net; Mike Buteau in Atlanta at mbuteau@bloomberg.net

To contact the editor responsible for this story: Michael Sillup at msillup@bloomberg.net.

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Dimon Fires Back at ‘Complex’ System in U.S. Senate Grilling

By Dawn Kopecki, Phil Mattingly and Clea Benson - Jun 14, 2012 12:33 AM GMT+0700

JPMorgan Chase & Co. (JPM) Chief Executive Officer Jamie Dimon spent much of his time at a hearing where U.S. senators aimed to put him on the defensive firing back at the federal regulatory system.

During more than two hours before the Senate Banking Committee, Dimon described a $2 billion loss in the bank’s chief investment office as a hedge that “morphed into something I can’t justify,” and largely blamed subordinates for a trading strategy gone wrong. The bank is looking at clawing back some of the compensation earned by those responsible, he said.

At the same time, Dimon, one of the most vocal bankers in challenging stricter regulation, said it would be hard for federal agencies to decide on a final version of the so-called Volcker rule, which bans proprietary trading for a bank’s own account.

“It’s going to be very hard to make a bright-line distinction between proprietary trading and hedging, because you can look at almost anything we do and call it one or the other,” Dimon said at the hearing in Washington.

‘Complex’ System

The regulatory system in the wake of the 2010 Dodd-Frank overhaul is “really complex,” he said. “No one can adjudicate between all the various regulatory agencies and it’s not clear to me who has regulatory authority.”

It was the first of two appearances Dimon will make on Capitol Hill to face lawmakers probing how the largest and most profitable U.S. bank, often praised for its “fortress” balance sheet, could have taken such risks after coming through the 2008 financial crisis largely unscathed.

The hearing didn’t answer some basic questions the Senate has about the details of the New York-based bank’s loss, Senator Richard Shelby, the ranking Republican on the committee, said afterward: “We’ll find that out in due time and we’ll be able to tell if they were managing risk or just seeking profits.”

Senator Tim Johnson, the panel’s chairman, a South Dakota Democrat, said the hearing “is a good reminder that we can’t let down our guard, and we must remain vigilant so we can continue to have a sound financial system.”

Amid chants from protesters, Dimon arrived shortly before 10 a.m. and began answering questions about the causes of the loss, which he described as part of a hedging strategy.

VaR Shift

Dimon said a new formula for estimating possible losses, implemented in January, failed to properly account for risk. On April 13, when he downplayed the risks of trades on a call with analysts, “we were still unaware that the model might have contributed to the problem,” Dimon said. “So when we found out later on, we went back to the old model.”

The switch -- and the timing of the firm’s disclosures -- are the focus of an inquiry by the Securities and Exchange Commission as the government examines how long senior executives knew about the CIO’s swelling bets and losses. Dimon said May 10 that the bank had reviewed the effectiveness of a new VaR model, deemed it “inadequate” and decided to return to the previous version. On that basis, the unit’s VaR doubled.

The bank’s board of directors is looking into events leading to the loss, Dimon said.

Clawbacks Expected

“When the board finishes its review, which is the appropriate time to make those decisions, you can expect that we will take proper corrective action and it is likely there will be clawbacks,” Dimon said.

As Dimon, 56, took his seat in the Senate hearing room, Tighe Barry, 50, a protester with activist group CodePink who works handling props on movie sets in Los Angeles, yelled, “This man is a crook and he needs to go to jail.” A few minutes later, several people rose out of the audience and started yelling, “Stop foreclosures now.” Senators delayed the hearing for a few minutes as Capitol police removed the protesters from the room.

Dimon told the committee that the bank let traders take risks they didn’t understand.

[To read Dimon’s prepared testimony, click here.]

He expressed regret over losses in the bank’s chief investment office, saying that its trading strategy was “poorly conceived and vetted” by senior managers who were “in transition” and not paying adequate attention.

“This portfolio morphed into something that, rather than protect the firm, created new and potentially larger risks,” Dimon said. “We have let a lot of people down, and we are sorry for it.”

Dimon said that the risk committee structures and processes were not as robust in the CIO as they should have been. The division’s London team built up a book of credit derivatives that became so large that employees couldn’t unwind it without roiling markets or incurring large losses.

London ‘Cowboys’

“I don’t want to see consumer lenders in Columbus losing their jobs because cowboys in London make too many risky bets,” said Senator Sherrod Brown, an Ohio Democrat, referring to 19,000 JPMorgan employees in his state.

Dimon defended the bank by saying lawmakers needed to put the losses “into perspective,” noting that no client, customer or taxpayer money was impacted. He said the second quarter would be “solidly profitable.”

Shares of JPMorgan advanced 2.3 percent to $34.55 at 11 a.m. in New York, the most in the 24-company KBW Bank Index, which climbed 0.7 percent. Shares of the bank have dropped 17 percent from May 10, when Dimon disclosed the losses, through yesterday, lopping about $26.5 billion from the firm’s market value.

Capital Rules

Dimon explained that the bank instructed the CIO in December to reduce its risk-weighted assets to prepare for new international capital rules. Instead, the office in mid-January “embarked on a complex strategy that entailed adding positions that it believed would offset the existing ones,” Dimon said. The portfolio grew and the problem got worse.

U.S. Senator Jeff Merkley, the Oregon Democrat pushing for stronger restrictions on banks’ bets with their own money through proprietary trading, said JPMorgan’s hedges were too risky.

“Portfolio hedging is just a name for saying anything goes, and we’ll continue proprietary trading,” Merkley said in an interview on Bloomberg Television.

Merkley, who co-wrote the Volcker provision in the Dodd- Frank Act along with Senator Carl Levin of Michigan, has said that the draft rule released by regulators in 2011 had loopholes that would allow banks to maintain much of their proprietary trading operations.

Five U.S. agencies are working to complete the Volcker rule, which is named for former Fed Chairman Paul Volcker and is intended to reduce risky trading by banks with federally insured deposits and access to the central bank’s discount window.

To contact the reporters on this story: Dawn Kopecki in New York at dkopecki@bloomberg.net; Phil Mattingly in Washington at pmattingly@bloomberg.net; Clea Benson in Washington at cbenson20@bloomberg.net

To contact the editors responsible for this story: Maura Reynolds at mreynolds34@bloomberg.net; David Scheer at dscheer@bloomberg.net

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U.S. Stocks Drop Amid Lower Retail Sales, Europe Concern

By Rita Nazareth - Jun 14, 2012 3:35 AM GMT+0700

U.S. stocks slid, after yesterday’s gain, as retail sales fell and concern about Europe’s debt crisis grew amid higher borrowing costs in Italy and Germany.

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A trader works at the New York Stock Exchange (NYSE) in New York. Photographer: Scott Eells/Bloomberg

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Jamie Dimon, chief executive officer of JPMorgan Chase & Co., speaks during a Senate Banking Committee hearing in Washington, D.C. on June 13, 2012. Photographer: Andrew Harrer/Bloomberg

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June 13 (Bloomberg) -- European stocks fell from a two-week high and U.S. equity-index futures declined. German bund yields climbed to a one month high before a debt sale while Italy’s 10- year bonds stayed higher after the government sold bills. (Source: Bloomberg)

Nine out of 10 groups in the Standard & Poor’s 500 Index retreated as consumer discretionary, commodity and industrial shares had the biggest losses. Home Depot Inc. (HD), Caterpillar (CAT) Inc. and DuPont (DD) Co. dropped at least 1.5 percent. JPMorgan Chase & Co. (JPM) rose 1.6 percent as Chief Executive Officer Jamie Dimon testified about his bank’s practices to lawmakers. Dell Inc. (DELL) advanced 2.6 percent after saying it will pay a dividend.

The S&P 500 fell 0.7 percent to 1,314.88 at 4 p.m. New York time. It rose 1.2 percent yesterday. The Dow Jones Industrial Average declined 77.42 points, or 0.6 percent, to 12,496.38. Trading volume for exchange-listed stocks in the U.S. was about 6.1 billion shares, 10 percent below the three-month average.

“It’s a tough recipe,” Burt White, who oversees $390 billion as chief investment officer at LPL Financial Corp. in Boston, said in a telephone interview. “Consumers are starting to question the validity of this recovery and beginning to plan for tougher times. At the same time you have global austerity. You’re getting more recessionary pressures throughout Europe and borrowing costs are moving higher. Things are deteriorating.”

Equities fell as retail sales dropped in May for a second month, as limited job and income gains hold back consumers. Euro-area industrial production declined for a second month in April, led by a drop in Germany, adding to signs of a deepening economic slump. The Group of 20 nations meeting in Mexico next week probably won’t announce significant progress on Europe’s debt crisis, a U.S. official said.

Greece’s Election

Investors also watched the latest developments ahead of Greece’s elections on June 17. Alexis Tsipras, whose Syriza party in Greece is vying for first place in pre-election polls, said he expects the European Union will do all it can to keep the nation in the euro even if he wins elections and carries out his promise to repeal the austerity measures required to receive emergency loans.

The S&P 500 (SPX) briefly rose as banks rallied. JPMorgan jumped 1.6 percent to $34.30 as Chief Executive Officer Jamie Dimon testified about his bank’s $2 billion trading loss. He said a switch to a new risk model in the first quarter may have helped fuel the loss, and the bank has shifted back to the old system.

“Dimon is not putting his foot in his mouth,” said Rick Fier, director of equity trading at Conifer Securities LLC in New York. His firm oversees more than $12 billion. “The bid in JPMorgan today is more because he didn’t say anything to get into him into any more trouble. Still, we’re not really seeing people chase this market. What managers are talking about the most is: where’s the growth going to come from?”

Most-Tied

The Morgan Stanley Cyclical Index (CYC) of companies most-tied to the economy lost 1.5 percent. Home Depot, the largest U.S. home- improvement retailer, lost 2.4 percent to $50.97. Caterpillar, the world’s largest maker of construction equipment, dropped 2 percent to $85.29. DuPont, a chemicals producer, fell 1.6 percent to $49.11.

Progressive Corp. (PGR) slumped 4.4 percent to $20.74. The fourth-largest U.S. auto insurer fell as claims costs rose above the company’s target.

Global Payments Inc. (GPN) retreated 4.1 percent to $40.48. The bank-card processor disclosed that “intruders” may have hacked into company servers containing personal information.

Casey’s General Stores Inc. (CASY) tumbled 13 percent, the most since 2008, to $52.18. The operator of convenience stores in the U.S. Midwest reported fourth-quarter earnings that trailed analysts’ estimates, citing a decline in gasoline profits.

Cut Costs

Dell rallied 2.6 percent to $12.28. The quarterly payout of 8 cents a share will begin in the period that ends in October. The dividend’s yield would be 2.7 percent, based on the stock’s closing price yesterday. The company will focus on data-center gear as well as computing software and services while seeking to cut costs by more than $2 billion over the next three years.

Johnson & Johnson (JNJ) gained 2.2 percent to $64.45. The company said its $19.7 billion purchase of Synthes Inc., the largest acquisition in its 126-year history, will add 3 cents to 5 cents a share to 2012 earnings as it gained U.S. clearance for the deal. Separately, the shares were upgraded at Jefferies Group Inc. and Raymond James Financial Inc.

The S&P 500 may decline more than 5 percent by the end of July before starting a rebound that may continue into the third quarter, according to technical analysts at UBS AG.

Third Wave

The analysts cited the average directional index indicator, or ADX, approaching the end of a third wave -- the momentum top of a trend. The ADX is the moving average of the directional movement indicator, a theory developed by J. Welles Wilder in 1978 that measures how far a security moves from an average price range calculated from second to second.

“We still see the risk of another setback towards 1,250 into the second half of July as the basis for a longer lasting corrective rebound into at least September,” Michael Riesner and Marc Mueller in Zurich wrote in a note dated yesterday. “On the back of our overbought momentum work we see further upside to be limited towards a maximum 1,358” for the rally.

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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