Bloomberg News

Stocks, Commodities Drop on Economy; Treasuries Pare Declines

June 06, 2011

June 6 (Bloomberg) -- Stocks retreated for a fourth day and oil declined below $100 a barrel amid concern the global economic recovery is faltering. Treasuries pared declines before the U.S. sells $66 billion of notes and bonds this week.

The Standard & Poor’s 500 Index slid 1.1 percent to 1,286.17 at 4 p.m. in New York, its lowest level on a closing basis since March 18, and the Stoxx Europe 600 Index declined 0.6 percent. Oil retreated before OPEC ministers meet this week in Vienna. The yen climbed against all 16 major peers, adding 0.2 percent versus the dollar. Ten-year Treasury yields rose two basis points to 3.01 percent after climbing five points earlier.

More than $2 trillion has been erased from the market value of global equities since this year’s peak on May 1 amid disappointing economic data, capped by last week’s U.S. jobs report. The S&P 500 has tumbled 5.7 percent from a nearly three- year high at the end of April, leaving the index trading at 12.2 times estimated earnings, the lowest valuation since September, according to data compiled by Bloomberg.

“We had very negative economic data points last week,” said Tom Wirth, senior investment officer for Chemung Canal Trust Co., which manages $1.6 billion in Elmira, New York. “I’m expecting the recovery will come back in the second half. For the time being, I’m not expecting much from the market.”

Financial shares were the biggest drag on the S&P 500, falling 2 percent as a group. The group of 82 banks, insurers and investment firms is also the worst-performing of the 10 main industries in the index this year with a drop of 6.6 percent. Bank of America Corp. lost 4 percent to a two-year low of $10.83, while JPMorgan Chase & Co. slumped 2.5 percent.

Wells Fargo & Co., the largest U.S. home lender, slumped 2.2 percent after Rochdale Securities LLC’s analyst Richard Bove cut his recommendation on the stock.

‘Systemically Important’

Federal Reserve Governor Daniel Tarullo said on June 3 that regulators should use capital surcharges to discourage mergers by large banks that would increase risk without yielding significant public benefits. Tarullo signaled the Fed aims to use tougher capital standards to curb risks from “systemically important financial institutions.” The Fed is developing a metric for banks with more than $50 billion in assets that gradually increases capital requirements according to measures of systemic importance, Tarullo said.

U.S. stocks have fallen for five straight weeks, the longest slump for the Dow Jones Industrial Average since 2004, as slower-than-estimated growth in jobs fueled concern that earnings forecasts are too optimistic. Labor Department figures last week showed that payrolls grew at the slowest pace in eight months and the U.S. jobless rate unexpectedly climbed to 9.1 percent in May. A separate report showed that manufacturing expanded at the slowest pace in more than a year.

Earnings Estimates

Earnings from S&P 500 companies are forecast to grow 20 percent in 2011 on a 9.8 percent increase in revenue, according to analyst estimates compiled by Bloomberg.

The Dollar Index, a gauge of the currency against six major peers, climbed 0.3 percent 74.006. The U.S. currency strengthened against 12 of 16 peers, gaining more than 0.9 percent against the Norwegian krone, Swedish krona and South African rand.

The Dollar Index climbed 2.3 percent in May, its biggest monthly gain since November. The advance may prove fleeting as a slowing U.S. economy and falling short-term interest rates encourage investors to use the currency to fund investments in higher-yielding assets. The dollar’s value will be unchanged from current levels by year-end, down from last month’s predicted 2 percent appreciation, according to analyst forecasts compiled by Bloomberg. Bets remain tilted against the greenback, Commodity Futures Trading Commission data show.

Commodities Retreat

Coffee, wheat and corn lost at least 2.9 percent for the biggest declines among the 24 commodities tracked by the S&P GSCI index, which lost 1.1 percent for its first drop in three days. Agricultural commodities retreated on speculation that drier, warmer weather last week allowed U.S. farmers to accelerate planting delayed by unusually wet spring.

Oil for July dropped 1.2 percent to $99.01 a barrel in New York, the lowest settlement since May 23. The Organization of Petroleum Exporting Countries is unlikely to change targets when it meets June 8, according to a Bloomberg News survey of 30 analysts conducted in the week ended May 31. Exxon Mobil Corp. and Schlumberger Ltd. paced losses in all 41 energy companies in the S&P 500.

U.S. Treasuries pared losses as stocks dropped. The government will auction $32 billion of three-year notes tomorrow, $21 billion of 10-year debt on the following day and $13 billion of 30-year bonds on June 9.

European Shares

The Stoxx 600 dropped to its lowest closing level since March 22. Unione di Banche Italiane ScpA and Societe Generale led a gauge of banks to the biggest drop among 19 industry groups, each falling more than 2.1 percent.

Portugal’s 10-year bond yield slipped eight basis points to 9.73 percent. Pedro Passos Coelho, Portugal’s incoming Social Democratic prime minister, said he would forge a coalition to meet conditions of the country’s 78 billion-euro ($114 billion) bailout.

The cost of protecting U.S. corporate bonds from default climbed to the highest since March. The Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, advanced 1.4 basis point to a mid-price of 96.07 basis points.

The Markit iTraxx Crossover Index of credit-default swaps for mostly high-yield debt rose 4.2 basis points to 388.9 basis points.

The MSCI Emerging Markets Index of stocks declined for a fourth day, losing 0.7 percent.

Peru Stocks Sink

Peru’s stock market suspended trading for the day after the benchmark index fell the most in at least two decades as former army rebel Ollanta Humala claimed victory in the presidential runoff, sparking concern his government will seek more control of the economy. The Lima General Index declined 12 percent, the most on record in data that goes back to January 1990. The sol sank 1.1 percent to 2.7890 per U.S. dollar.

U.S. companies with business in Peru retreated. Southern Copper Corp., Peru’s biggest producer of the metal, fell 11 percent. Credicorp Ltd. dropped 19 percent after Peru’s largest financial services company was cut to “underperform” from “outperform” by Raymond James Financial Inc., which cited “political uncertainties.”

Turkey’s lira weakened 0.9 percent against the dollar and benchmark government bond yields increased after Moody’s Investors Service said in an e-mailed response to questions from Bloomberg News that the country’s credit rating may have “downward pressure” if the current-account deficit becomes more difficult to finance.

--With assistance from John Quigley in Lima, Mary Childs, Allison Bennett in New York, Matthew Brown, Claudia Carpenter, Anchalee Worrachate Sarah Jones, Michael Patterson, Andrew Rummer, Michael Shanahan in London. Editor: Michael P. Regan

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

To contact the editor responsible for this story: Michael Regan at mregan12@bloomberg.net


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