Bloomberg News

Stocks, Euro Sink on Concern Over Greek Rescue, Slowing Economy

June 15, 2011

June 15 (Bloomberg) -- U.S. stocks sank the most in two weeks, almost erasing the 2011 gain for the Standard & Poor’s 500 Index, and the euro slid the most in more than a month amid rising concern that Greece will default and evidence that the American economy is slowing. Treasuries rallied.

The S&P 500 fell 1.7 percent to a three-month low of 1,265.42 at 4 p.m. in New York, trimming its year-to-date gain to 0.6 percent, and the Stoxx Europe 600 Index closed down 1.1 percent. The euro lost 1.9 percent to $1.4166 and the cost of insuring Greek and Portuguese debt climbed to records. Oil sank to the lowest price since February as the S&P GSCI Index of commodities plunged 3.4 percent. The Dollar Index surged the most in 10 months, 10-year Treasury yields fell below 3 percent and two-year rates dropped the most since April.

Stocks and the euro extended losses amid concern Greek Prime Minister George Papandreou will be forced out of office amid escalating protests over budget cuts, fueling speculation that the austerity measures needed to qualify for international aid will be put in jeopardy. A report that Ireland’s finance minister wants bondholders to share the burden of bailing out the nation’s banks also weighed on markets. The S&P 500 erased a two-day gain as economic reports spurred concern growth is slowing as inflation picks up.

“The euro is getting killed because the risk trade is off as people run to the dollar and Treasuries,” said Donald Selkin, New York-based chief market strategist at National Securities Corp., which manages $3 billion. “It’s going to be a tough summer. We’re seeing slowing economic growth and a little higher inflation, that’s not a good combination.”

Broad Retreat

Commodity producers, financial firms and technology companies led declines of at least 1.2 percent in all 10 of the main industry groups in the S&P 500. Alcoa Inc., Bank of America Corp. and Home Depot Inc. lost more than 2.4 percent to lead declines in all 30 stocks in the Dow Jones Industrial Average, which sank 178.84 points, or 1.5 percent, to 11,897.27.

The Federal Reserve Bank of New York’s manufacturing index dropped to minus 7.8, the lowest level since November. The gauge was forecast to read 12, according to a Bloomberg survey of economists. Readings less than zero signal contraction in the so-called Empire State Index that tracks the New York region. Separate data showed industrial production rose 0.1 percent. Economists projected a 0.2 percent gain. Another report showed homebuilder confidence trailed estimates.

Inflation Accelerates

The consumer-price index increased 0.2 percent, compared with the 0.1 percent median forecast of economists in a survey, figures from the Labor Department showed. The so-called core measure, which excludes more volatile food and energy costs, climbed 0.3 percent, the biggest increase since July 2008.

Owens-Illinois Inc., the world’s largest maker of glass bottles, sank 14 percent for the biggest drop in the S&P 500 and the stock’s worst slide in more than two years after the company lowered its forecast for second-quarter profit margin because of higher costs and weaker demand in Australia, where it may idle a glass furnace. Scotts Miracle-Gro Co. declined 6 percent as the maker of lawn-care products cut its earnings forecast for 2011.

Pandora Media Inc., the online-radio company, surged 8.9 percent to $17.42 in its stock-market debut in New York after its shares priced at $16 each, above the top of range.

‘Still Pretty Optimistic’

The S&P 500 has tumbled 7.2 percent from an almost three- year high at the end of April as data on manufacturing, employment growth and housing trailed economists’ estimates and investors prepared for the end of the Fed’s $600 billion bond- purchase program known as quantitative easing.

The weakening economic reports triggered concern that analysts are too optimistic as they project 20 percent earnings growth in 2011 on a 9.7 percent increase in revenue, according to estimates compiled by Bloomberg. The S&P 500 is trading at 12.7 times forecast 2011 earnings, the lowest multiple in almost a year.

“Analysts who cover the major companies or the major indices are still pretty optimistic about revenue growth and earnings growth,” Nicholas Colas, chief market strategist at BNY ConvergEx Group LLC, told Bloomberg Television. “They haven’t seen and heard about the kind of slowdown the market is worried about. So if companies can come through with solid earnings, which they have for the last two years, and show some positive revenue growth, then I think we have a better more balanced recipe for an expansion in the market”

Two-year Treasury note yields dropped six basis points, or 0.06 percent, to 0.38 percent. The Dollar Index rose 1.7 percent to 75.593, the most since August on a closing basis, after falling for two days.

Default Swaps Climb

The cost of protecting corporate bonds from default in the U.S. jumped. The Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, increased 3.3 basis points to a mid-price of 100.04, erasing yesterday’s 2.8 basis point decrease, according to index administrator Markit Group Ltd.

Oil tumbled below $95 a barrel for the first time since February on concern fuel consumption will decrease as the economy slows. Crude for July delivery sank 4.6 percent to $94.81.

Of the 24 commodities tracked by the S&P GSCI Index, only five gained -- silver, gold, lean hogs, soybeans and natural gas. Gold futures increased 0.1 percent to $1,526.20 an ounce.

European Shares

Almost nine stocks fell for each that gained in the Stoxx 600, with banks leading losses. National Bank of Greece SA slid 6 percent and Banco Comercial Portugues SA sank 6.1 percent. BNP Paribas SA, Societe Generale SA and Credit Agricole SA may have their debt ratings cut because of their investments in Greece, Moody’s Investors Service said today. Shares of each bank slipped more than 2.4 percent.

Greece’s Papandreou will name a new government tomorrow and call a vote of confidence in parliament as he seeks to pressure rebel lawmakers to back the austerity plan that aims to secure a new bailout. Papandreou’s plan comes amid mounting opposition and defections among allies and counters a demand by the New Democracy opposition party that he quit and that a cross-party coalition renegotiate the terms of the rescue.

An emergency session of European finance ministers ended with no progress on a new aid package for Greece, German Finance Minister Wolfgang Schaeuble told reporters yesterday. EU finance ministers meeting in Brussels yesterday agreed to convene again on June 19, a day earlier than planned. Talks may drag on into July, Luxembourg’s Finance Minister Luc Frieden said.

Dollar Rallies

The yield on the Greek 10-year bond climbed as much as 58 basis points to a record 17.96 percent, rising for the seventh day, as protesters in Athens threatened to surround Parliament, where lawmakers began to debate budget cuts and asset sales. The extra yield investors demand to hold the securities instead of benchmark German bunds rose to a record 1,498 basis points during the day.

Ireland’s 10-year bond yield increased 17 basis points to 11.56 percent, the highest since at least 1991, and the nation’s benchmark ISEQ Index of stocks sank 1.1 percent.

Irish Finance Minister Michael Noonan said senior unsecured, unguaranteed bondholders in Anglo Irish Bank Corp. and Irish Nationwide Building Society should share the burden of bailing out both lenders, according to Dublin-based broadcaster RTE. In an interview, Noonan said he discussed the issue with the International Monetary Fund and that the Washington-based organization supported the strategy, according to RTE.

--With assistance from Jimi Corpuz and Rita Nazareth in New York, Stephen Kirkland, Claudia Carpenter, Andrew Rummer, Michael Shanahan and Dan Tilles in London and Natalie Weeks and Maria Petrakis in Athens. Editors: Michael Regan, Nick Baker.

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To contact the reporters on this story: Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.net; Lu Wang in New York at lwang8@bloomberg.net.

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


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