Bloomberg News

Stocks Slide, 10-Year Note Yield Reaches Record Low; Franc Drops

September 06, 2011

Sept. 6 (Bloomberg) -- Stocks fell, sending Europe’s benchmark index to a two-year low, while 10-year Treasury yields slid to a record amid growing concern Europe’s debt crisis is worsening. The franc sank the most since the euro’s creation as the Swiss central bank set a ceiling on the exchange rate.

The Standard & Poor’s 500 pared losses during the day, ending down 0.7 percent at 4 p.m. in New York following a morning drop of as much as 2.9 percent. The Stoxx Europe 600 Index slipped 0.7 percent to the lowest level since July 2009. The franc depreciated 7.9 percent versus the euro. Gold in London lost 1.1 percent after earlier climbing 1.1 percent to $1,921.15 an ounce, an all-time high. Ten-year Treasury yields slid as much as eight basis points to 1.91 percent before trimming declines to trade at 1.97 percent.

Stocks maintained losses even as a private report showed U.S. service industries grew faster than the median forecast of economists in a Bloomberg survey. Policy makers are “aiming for a substantial and sustained weakening of the franc,” the Swiss National Bank said in an e-mailed statement today, saying it’s prepared to spend unlimited quantities of currency to preserve it above 1.20 per euro after investors pursued the currency as a haven.

“Everybody is watching what’s going on in Europe at this point,” Madelynn Matlock, who helps oversee about $14.8 billion at Huntington Asset Advisors in Cincinnati, said in a telephone interview. “It’s starting to feel 2008-ish where there are nine bad things to one good thing. The dreaded uncertainty is out there. The concern about a global recession is edging higher.”

Service Industries

The S&P 500 extended its three-day slide to 4.4 percent selloff, remaining lower even after the Institute for Supply Management’s index of non-manufacturing businesses increased to 53.3 in August from 52.7 a month earlier. A reading above 50 signals expansion and the median forecast in a Bloomberg News survey of economists called for a reading of 51.

Bank of America Corp., General Electric Co., Hewlett- Packard Co. and JPMorgan Chase & Co. slid at least 2.9 percent to lead declines in 27 of 30 stocks in the Dow Jones Industrial Average. Financial shares led losses in nine of the 10 main S&P 500 groups.

The U.S. stock market was closed yesterday for the Labor Day holiday, as global equities fell, Italian bonds dropped for an 11th day and the cost of government and bank default insurance rose to records amid concern about Europe’s debt crisis.

The S&P 500 plunged 2.5 percent on Sept. 2, wiping out a weekly advance, as a government report showing employment growth stagnated stoked concern the economy may fall into a recession. The index slid as much as 18 percent from a three-year high on April 29 and sank 5.7 percent in August, the biggest monthly drop since May 2010. Stocks trimmed losses at the end of last month as Federal Reserve Chairman Ben S. Bernanke said on Aug. 26 that the central bank has tools to stimulate growth.

Bank Shares

Financial shares sank 1.9 percent last week as the Federal Housing Finance Agency sued lenders over residential mortgage- backed securities. The S&P 500 Financials Index is down 22 percent this year through last week.

Bearish bets by investors using futures contracts on the S&P 500 Index increased to the highest level in almost four years in the week ended Aug. 30, according to data compiled by Bloomberg and the Commodity Futures Trading Commission. Short selling involves the sale of securities borrowed from the owner, and generates profit when the trader repurchases them at a lower price and returns them to the owner.

Short Sales

Hedge funds and other large speculators hold a net 107,913 futures contracts wagering that the S&P 500 will decrease in value. The short position is the highest since September 2007, when bearish bets reached a record of 127,474 contracts a month before the benchmark equity gauge reached an all-time high, according to Bloomberg data going back to 1997.

Three stocks dropped for every two that rose in the Stoxx Europe 600 Index. BNP Paribas SA and Banco Santander SA paced losses in banks, which fell the most among 19 groups.

The chief executive officer of Deutsche Bank AG, Josef Ackermann, said yesterday market conditions remind him of late 2008, and urged lawmakers to act to avoid a repeat of the financial crisis, which spawned the worst global recession since the Great Depression.

The franc weakened at least 8 percent against every one of its 16 major peers. The Swiss currency had climbed almost 13 percent this year versus the euro as the debt crisis in Europe’s weakest economies prompted investors to seek the safest assets.

The Swiss Market Index of stocks jumped 4.4 percent, the most since Aug. 12, on speculation the weaker currency will help exporters. Swatch Group AG, the world’s biggest maker of watches, rallied 4.3 percent. Transocean Ltd., the largest offshore oil driller, soared 12 percent. Novartis AG, Europe’s biggest drugmaker, surged 6.8 percent.

‘Major’ Event

“The SNB move is a major foreign-exchange event for 2011 in a market running long the franc as a risk-aversion play,” Neil Jones, head of European hedge-fund sales at Mizuho Corporate Bank Ltd. in London, wrote in an e-mailed comment.

Greek bonds dropped, with 10-year yields climbing 50 basis points to a euro-era record 19.82 percent, while two-year note yields added 194 basis points to 52.31 percent. The yield spread between Greek 10-year notes and similar-maturity German bunds widened to a euro-era high of 1,797 basis points, or 17.97 percentage points.

Europe Meetings

Ministers from Germany, Finland and the Netherlands will met today to discuss a Finnish demand for collateral in a bailout for Greece, while the Italian Senate will debate an austerity plan amid a strike.

Italy’s two-year note yields rose 10 basis points to 4.20 percent. The nation’s 10-year bonds rose for the first day in 12, driving the yield down six basis points to 5.50 percent.

Italian Prime Minister Silvio Berlusconi called a Cabinet meeting today to authorize a confidence vote in Parliament on an amended 45.5 billion-euro ($64.5 billion) austerity plan that prompted a general strike.

The MSCI Emerging Markets Index retreated 0.2 percent, taking its three-day slump to 4.9 percent. South Korea’s Kospi Index slid 1.1 percent and the Shanghai Composite Index fell 0.3 percent.

The S&P GSCI index of commodities fell 0.5 percent as New York oil slipped 0.5 percent from its Sept. 2 close to $86.02 a barrel, and gasoline dropped 0.6 percent to $2.8226 a gallon. Cocoa, sugar and coffee lost more than 2.4 percent to lead declines in 15 of 24 materials tracked by the S&P GSCI.

--With assistance from Shiyin Chen in Singapore and Claudia Carpenter, Emma Charlton, Abigail Moses, Andrew Rummer and Jason Webb 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: Nick Baker at nbaker7@bloomberg.net


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