Bloomberg News

Stocks, Euro, Italian Bonds Retreat Amid G-20’s IMF Disagreement

November 07, 2011

Nov. 4 (Bloomberg) -- Stocks, the euro and Italian bonds fell as a disagreement on boosting the International Monetary Fund’s resources to fight Europe’s debt crisis overshadowed a drop in the U.S. jobless rate. Treasuries erased early declines.

The Standard & Poor’s 500 Index lost 0.6 percent to close at 1,253.23 at 4 p.m. in New York, paring a drop of as much as 1.8 percent. The Stoxx Europe 600 Index retreated 1 percent as the euro weakened 0.3 percent to $1.3777. Ten-year Italian bond yields rose to a euro-era high, while rates on 10-year German debt capped the biggest weekly drop on record. Oil completed its longest streak of weekly gains since 2009. Treasury 10-year yields lost four basis points to 2.04 percent.

Equities headed lower as G-20 leaders failed to agree on increasing the IMF’s resources, fueling concern European leaders won’t be able to tap more foreign aid to tame their debt crisis. The U.S. jobless rate unexpectedly fell to a six-month low of 9 percent, the Labor Department said, as slower-than-forecast jobs growth in October was overshadowed by larger gains in the prior two months.

“We’re still held hostage to Europe,” Jim Dunigan, who helps oversee $103 billion as chief investment officer in Philadelphia for PNC Wealth Management, said in a telephone interview. “It’s a fragile environment and the effort to make progress there is two steps forward, one step back.”

Weekly Loss

The S&P 500 lost 2.5 percent over five days, its first weekly drop since September, as Greece’s delay in accepting a European bailout fueled concern the nation would be forced to default and debt crisis will worsen. Financial shares fell 1.4 percent as a group to lead losses among all 10 of the main industries in the index today.

Bank of America Corp. sank 6.1 percent as the company’s plan to bolster its balance sheet renewed concern that shareholders may see their stakes diluted. Berkshire Hathaway Inc., expected to report earnings after markets close today, also paced losses with a 2 percent drop.

Jefferies Group Inc. closed up 0.5 percent, rebounding from a slide of as much as 7.4 percent, as the investment said it will increase disclosure of European holdings to counter investor concern.

Groupon Inc. shares surged 31 percent in the first day of trading after the biggest online-coupon provider raised $700 million in its initial public offering, 30 percent more than it sought. LinkedIn Corp. slumped 5.9 percent after the biggest professional-networking website reported a third-quarter loss.

Jobs Data

The 80,000 increase in payrolls last month trailed the median forecast of economists for a gain of 95,000. Growth in the prior two months was revised up by 102,000 jobs, Labor Department figures showed.

The S&P 500 has rallied 14 percent since Oct. 3 after concern that Europe’s debt crisis would trigger another recession dragged it down 19 percent from a three-year high on April 29. The rebound was spurred by better-than-estimated earnings and economic data and growing confidence that leaders would help Greece avoid default. The S&P GSCI Index of commodities had climbed 11 percent from its 2011 low on Oct. 4, while the 10-year Treasury yield increased from a record low of 1.67 percent set on Sept. 23.

Per-share earnings beat estimates at about three-quarters of the companies in the S&P 500 that released results since Oct. 11, data compiled by Bloomberg show. Net income grew 15 percent for the group on a 11 percent increase in sales.

‘Glacial Improvement’

The Citigroup Economic Surprise Index for the U.S., which measures the rate at which data is beating or trailing economists’ forecasts, rose to a six-month high of 18.7 today. The index has rebounded from minus 117.2 on June 3, when it showed economic data was trailing estimates by the most since January 2009.

“We see glacial improvement in the economic data,” Stephen Wood, who helps oversee about $163 billion as the New York-based chief market strategist for Russell Investments, said in a telephone interview. “There’s improvement, but the pace is very slow.”

Nickel and coffee climbed at least 1.5 percent to help lead the S&P GSCI Index up 0.4 percent today. Crude oil for December delivery rose 19 cents, or 0.2 percent, to $94.26 a barrel on the New York Mercantile Exchange, the highest settlement level since Aug. 1. Prices are up 1 percent since Oct. 28. Oil has risen for five consecutive weeks.

The Stoxx 600 declined 3.7 percent over the past five days, snapping a five-week winning streak. Banks were the biggest drag on the index today, with BNP Paribas losing 3.3 percent and UniCredit Spa down 6.6 percent. The two banks as well as Deutsche Bank AG, Goldman Sachs Group Inc., Wells Fargo & Co. and Credit Suisse Group AG are among 29 lenders that must hold additional capital buffers ranging from 1 to 2.5 percentage points under plans approved today by the G-20.

Alcatel-Lucent SA sank 17 percent as France’s largest telecommunications equipment supplier cut its earnings forecast.

Italy Bonds

Italy’s 10-year bond yield climbed as much as 21 basis points to 6.40 percent. Italy invited the IMF to monitor implementation of its austerity measures in order to bolster their credibility, European Commission President Jose Barroso said. Prime Minister Silvio Berlusconi said he still has a parliamentary majority as he dismissed reports that more members of his party have defected.

Bunds Rally

German 10-year yields slipped nine basis points to 1.82 percent, capping a 35 basis-point weekly drop, the most since Bloomberg began collecting the data in 1989. Spain’s yield increased eight basis points to 5.58 percent. Two-year Greek yields decreased 433 basis points to 97.97 percent after surging to as high as 105 percent earlier.

The cost of insuring against default on European sovereign debt rose, reversing an earlier decline, according to traders of credit-default swaps. The Markit iTraxx SovX Western Europe Index of swaps on 15 governments rose 7.6 basis points to a mid- price of 325.3.

World leaders meeting at the G-20 summit in Cannes, France, balked at spending more money to help bail out the euro-area, demanding the region’s own governments first do more to fix the two-year-old debt crisis. Governments are awaiting further details of Europe’s own week-old rescue package before they commit cash, German Chancellor Angela Merkel said on the final day of a Group of 20 summit in Cannes, France.

Confidence Vote

Greek Prime Minister George Papandreou triggered a two-day rout in stocks at the beginning of this week after saying he wanted voters to decide if the nation should accept another bailout brokered by European leaders last week. Ruling party lawmakers today urged Papandreou to step down and allow the formation of a new government that can approve a European Union aid package needed to avert default. A confidence vote was scheduled for tonight in Athens.

The MSCI Emerging Markets Index rose 1.6 percent, the most in a week, after the Hang Seng China Enterprises Index of Chinese companies listed in Hong Kong jumped 3.8 percent and South Korea’s Kospi Index rose 3.1 percent. Funds investing in developing-nation stocks attracted $3.5 billion in the week ended Nov. 2, the most since April, according to a Citigroup Inc. report, citing figures compiled by EPFR Global.

--With assistance from Shiyin Chen in Singapore, Andrew Rummer and Stephen Kirkland in London, Rita Nazareth in New York, Simon Kennedy in Paris and Tony Czuczka in Berlin. Editors: Michael P. Regan, Nick Baker

To contact the reporters on this story: Inyoung Hwang in New York at ihwang7@bloomberg.net; Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.net

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


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