Bloomberg News

Stocks Drop on Earnings, European Summit; Treasuries, Oil Gain

October 25, 2011

Oct. 25 (Bloomberg) -- U.S. stocks slid, halting a three- day rally, amid earnings and economic reports that disappointed investors and uncertainty over how much progress European leaders are making in debt-crisis talks. Treasuries rallied, while oil surged on signs of falling supplies.

The Standard & Poor’s 500 Index tumbled the most in three weeks, losing 2 percent to 1,229.05 as of the 4 p.m. close in New York. The Stoxx Europe 600 Index dropped 0.7 percent while the euro slipped from a six-week high, weakening 0.2 percent to $1.3901. Ten-year Treasury yields fell 13 basis points to 2.11 percent. The S&P GSCI Index of commodities added 0.6 percent as oil rose to a 12-week high. Amazon.com Inc. retreated 15 percent after missing profit forecasts.

The cancellation of tomorrow’s meeting of European Union finance ministers spurred concern that a summit of the region’s leaders will fail to produce agreements on how to tame the debt crisis. 3M Co. slid following lower-than-estimated earnings and United Parcel Service Inc. slipped as international shipping growth began to cool, while a gauge of U.S. consumer confidence sank to the lowest since March 2009.

“It’s hard to get excited in this environment,” Timothy Ghriskey, who oversees $2 billion as chief investment officer of Solaris Group LLC in Bedford Hills, New York, said in a telephone interview. “You have very anemic growth and you have a big a question mark about the debt situation in Europe.”

EU Meetings

The EU finance ministers’ meeting was canceled because the bank-recapitalization issue cannot be decided before other elements of the rescue package, a person familiar with the matter said on condition of anonymity. Summits of the 27 EU leaders and 17 heads of the euro area will take place as scheduled, EU President Herman Van Rompuy said.

The S&P 500 retreated after three straight gains lifted the benchmark index to the highest level since Aug. 3 and trimmed its year-to-date drop to less than 0.3 percent yesterday. 3M slid 6.3 percent for its worst drop in almost three years and biggest loss in the Dow Jones Industrial Average. Alcoa Inc., Bank of America Corp., Hewlett-Packard Co. and JPMorgan Chase & Co. also slid more than 3 percent as the Dow sank 207 points, or 1.7 percent, to 11,706.62.

MF Global Holdings Ltd. plunged 48 percent, the most since March 2008, after the futures broker said its quarterly loss widened on charges tied to deferred tax assets and a restructuring. Netflix Inc. slumped the most in seven years, sinking 35 percent, after the video-rental service posted bigger-than-forecast user losses following a price increase.

Topping Projections

Earnings have topped the average analyst estimate at about 74 percent of the 144 companies in the S&P 500 that have reported results since Oct. 11, Bloomberg data show. Net income has increased 14 percent for the group and sales have risen 10 percent. Earnings have surpassed estimates by an average 5.9 percent, compared with an average 8.5 percent each quarter since 2009, the data show.

After U.S. exchanges closed, Amazon missed the average analyst profit estimate by 42 percent and said it may post an operating loss of $200 million in the fourth quarter, while analysts projected income. Amazon is sacrificing profit margins in search of sales volume and market-share gains against companies such as Apple Inc.

Amazon shares tumbled 15 percent to $193.10 at 4:44 p.m. New York time.

Extending Losses

Stocks extended losses in early trading as the Conference Board’s consumer-sentiment index decreased to 39.8 from a revised 46.4 reading in September. The S&P/Case-Shiller index of property values in 20 cities fell 3.8 percent from August 2010, the group said today. The median forecast of 30 economists surveyed by Bloomberg was for a 3.5 percent decline.

Oil in New York jumped 2.1 percent to $93.17 a barrel after surging 4.4 percent yesterday. Futures climbed as much as 3.7 percent, erasing this year’s loss. Supplies at Cushing, Oklahoma, the delivery point for West Texas Intermediate, the grade traded in New York, fell last week, a satellite survey showed.

Silver and gold rallied at least 3 percent on demand for the metals as haven investments, leading gains in nine of 24 commodities tracked by the S&P GSCI. Coffee, lead, zinc, hogs and copper fell more than 1.3 percent for the biggest declines.

The euro weakened against eight of 16 major peers, with the South Korean won and Swiss franc strengthening at least 0.4 percent to lead gains. The dollar slipped as much as 0.5 percent against the Japanese currency to touch a post-World War II low of 75.74 yen, before paring losses in half after the Nikkei newspaper reported that policy members will discuss steps to ease the impact of the strong yen on the Japanese economy.

11-Week High

The Stoxx Europe 600 Index retreated from an 11-week high as real-estate and construction companies led losses. STMicroelectronics NV, Europe’s largest semiconductor maker, fell 7.9 percent after predicting fourth-quarter sales short of analysts’ estimates.

Among European bonds, yields on 10-year French debt fell 13 basis points and 10-year German bund yields lost six points. Spanish yields slipped one point. The rate on 10-year Greek debt decreased 44 basis points to 23.90 percent, while yields on two- year Greek notes surged 1.75 percentage points to a record 80.06 percent.

European policy makers are negotiating with banks over the size of losses they take on Greek bonds while deliberating over leveraging the fund after ruling out tapping the European Central Bank’s balance sheet.

Greek Debt

Financial companies, represented by the Washington-based IIF, proposed a loss of 40 percent on Greek debt, said a person briefed on the matter who declined to be identified because the talks are confidential. Luxembourg’s Jean-Claude Juncker, who leads the group of euro-area finance ministers, said yesterday that talks on private-sector involvement in a second aid package for Greece are focusing on losses of 50 percent to 60 percent.

Juncker also said he wants the International Monetary Fund included “to the maximum extent” in Europe’s sovereign-debt rescue plan.

“We need to take a decision that will answer all questions in a good way,” Juncker said today in an interview in Zurich. “It’s desirable to include the IMF in any European solution to a maximum extent.”

The cost of insuring against default on European bank debt rose. The Markit iTraxx Financial Index of credit-default swaps linked to senior debt of 25 banks and insurers increased 7.5 basis points to 242 and the subordinated gauge was six basis points higher at 474, according to JPMorgan Chase & Co. at 4 p.m. in London.

New Zealand

The New Zealand dollar weakened versus all 16 of its major peers after the government said inflation slowed in the third quarter. South Africa’s rand slipped against 12 of 16 major counterparts after the government cut its forecast for economic growth next year.

The MSCI Emerging Markets Index rose 0.6 percent to the highest since Sept. 16 as Asian markets increased. The Shanghai Composite Index gained 1.7 percent as China Vanke Co.’s profit jump eased concern that the slowing economy and tighter monetary policies will spur a collapse in earnings. Thailand’s SET index climbed 2.9 percent as trading resumed after yesterday’s holiday.

India’s stocks rose to a three-month high, the rupee surged and government bonds rallied as the central bank signaled it is nearing the end of the nation’s most aggressive credit- tightening on record.

The rupee, Asia’s worst-performing currency this year, rose 0.7 percent against the dollar as the Reserve Bank of India boosted its benchmark rate for the 13th time since March 2010, as predicted by 18 of 28 economists surveyed by Bloomberg. Today’s policy decision will help temper inflation and leave room for economic growth to improve, Finance Minister Pranab Mukherjee said in New Delhi today. The BSE India Sensitive Index surged 1.9 percent.

--With assistance from Matthew Brown, Claudia Carpenter, Andrew Rummer and Stephen Kirkland in London, Krystof Chamonikolas in Prague, Mark Shenk and Whitney Kisling in New York, Rajhkumar K Shaaw and Jeanette Rodrigues in Mumbai and Nicholas Comfort in Frankfurt. Editors: Michael P. Regan, Nick Baker

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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