Bloomberg News

Stocks Drop on JPMorgan Trading Loss as Commodities Slump

May 11, 2012

JPMorgan, the biggest U.S. bank by assets, tumbled 6.7 percent after the close of regular U.S. trading as Chief Executive Officer Jamie Dimon said the bank made egregious mistakes and trading losses were “self inflicted.” Photographer: Jin Lee/Bloomberg

JPMorgan, the biggest U.S. bank by assets, tumbled 6.7 percent after the close of regular U.S. trading as Chief Executive Officer Jamie Dimon said the bank made egregious mistakes and trading losses were “self inflicted.” Photographer: Jin Lee/Bloomberg

U.S. stocks fell, extending a weekly decline, as banks tumbled after JPMorgan Chase & Co. (JPM:US) disclosed a $2 billion trading loss. Treasuries capped the longest run of weekly gains since 1998, while commodities fell for an eighth day to extend the longest slump in more than three years.

The Standard & Poor’s 500 Index lost 0.3 percent to close at 1,353.39 at 4 p.m. in New York, sending it down 1.2 percent in the week. The S&P GSCI Index of 24 commodities lost 0.8 percent to extend this week’s slump to 1.7 percent and erase its gain for the year. The advance in 10-year Treasuries sent yields down two basis points to 1.84 percent as the benchmark note completed an eighth weekly increase.

Financial shares led losses as JPMorgan Chief Executive Officer Jamie Dimon blamed an “egregious” failure in trading of synthetic credit securities for the trading loss, distracting investors’ attention from an unexpected increase in the Thomson Reuters/University of Michigan index of consumer sentiment to a four-year high. Commodities fell as China’s industrial production grew the least since 2009 in April, spurring concern demand for raw materials may wane.

“The U.S. economy is doing OK, corporate earnings continue to impress, but there’s a lot of headline risk in financials,” Stephen Wood, the New York-based chief market strategist for Russell Investments, said in a telephone interview. His firm oversees $140.8 billion. “There will be volatility.”

The S&P 500 fell for a second straight week and extended its drop from a four-year high last month to 4.6 percent.

JPMorgan Plunges

JPMorgan plunged 9.3 percent, the most since August. The bank’s chief investment office, run by Ina Drew, took flawed positions on synthetic credit securities that remain volatile and may cost the lender an additional $1 billion this quarter or next, Dimon said yesterday in a conference call with analysts. Fitch Ratings cut the company’s long-term debt rating one level to A+ after markets closed in New York

Federal Reserve officials are gathering more information about the trading position at the bank, according to a person familiar with the matter. Securities and Exchange Commission Chairman Mary Shapiro said the agency is monitoring the bank. U.S. Senator Bob Corker, a senior Republican on the Banking Committee, asked the panel’s chairman today to hold a hearing on the trades.

JPMorgan led losses in the Dow Jones Industrial Average, which slipped 34.44 points to 12,820.60, with Bank of America Corp. losing 2 percent for the second-biggest drop. Financial shares in the S&P 500 fell 1.2 percent as a group.

Nvidia Corp. (NVDA:US) jumped 6.4 percent, the most since October, as its sales forecast topped estimates amid demand for graphics and cell-phone chips. S&P 500 technology companies slipped 0.1 percent after leading the market higher earlier.

Swaps Index

Derivatives traders seeking to profit on speculation JPMorgan is unwinding positions tied to its trading loss are driving up a vintage credit-default swaps index to the highest in more than three months.

The 10-year Markit CDX North America Investment Grade Index Series 9, created in 2007, reached as high as 139.4 basis points today before easing to 134.1 as of 12:41 p.m. in New York, according to data provider CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market. The index ended yesterday at 126.7.

Treasuries

Ten-year Treasury yields approached three-month low after German Finance Minister Wolfgang Schaeuble suggested the euro area could handle Greece dropping out. Thirty-year bonds gained as wholesale inflation declined last month before the Federal Reserve buys as much as $2 billion of longer-term securities.

Average estimates for 10-year Treasury yields three months from now are at 1.99 percent, 24 basis points lower than expectations in April, according to a survey from Citigroup Inc, published yesterday.

All but three of 24 commodities tracked by the S&P GSCI retreated. Cotton tumbled as much as 5.7 percent to an almost two-year low to lead losses following a U.S. forecast for rising inventories. Gold declined to a four-month low, losing 0.7 percent to $1,584 an ounce. Copper fell 1.2 percent to $3.648 a pound, capping a second weekly drop, following slower-than- forecast growth in industrial production in China, the biggest consumer of the metal. Oil fell 1 percent to $96.13 a barrel.

“The optimism we had at the end of 2011 that created a firm footing for a lot of commodities has slowly eroded,” said Jonathan Barratt, chief executive of Barratt’s Bulletin, a commodity-markets newsletter in Sydney. “The outlook remains mixed to negative.”

The Dollar Index (DXY), a gauge of the currency against six major peers, rose 0.2 percent to 80.282 as it climbed for a 10th straight day in the longest rally since August 2008. The dollar strengthened against 14 of 16 major peers. The euro slipped 0.1 percent to $1.2919, the lowest level since January.

European, Emerging Markets

The Stoxx Europe 600 Index (SXXP) rose 0.4 percent, erasing a loss of as much as 1.2 percent. The regional benchmark fell 0.4 percent this week as Greece’s struggles to form a government revived concern about the nation’s debt crisis. The euro was little changed at $1.2931 after earlier touching the weakest level since January.

The MSCI Emerging Markets Index (MXEF) lost 1.2 percent, extending declines from this year’s March 2 high to 10 percent, the level that some investors consider to signal a correction. The Hang Seng China Enterprises Index (HSCEI) slumped 1.4 percent. India’s Sensex Index slipped 0.8 percent as production at factories, utilities and mines declined in March.

Germany’s 10-year bund yield fell two basis points to a record low of 1.52 percent, while the yield on Greece’s 10-year note advanced 57 basis points, climbing for the ninth straight day. Greek political leaders go into a fifth day of talks today with Evangelos Venizelos, the socialist Pasok leader, set to press for a unity government that would avert a new election. Antonis Samaras, head of the New Democracy party, said today his sole condition for supporting a coalition government is that it guarantees Greece’s membership of the euro area.

To contact the reporters on this story: Elizabeth Campbell in Chicago at ecampbell14@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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Companies Mentioned

  • JPM
    (JPMorgan Chase & Co)
    • $59.45 USD
    • 0.29
    • 0.49%
  • NVDA
    (NVIDIA Corp)
    • $19.45 USD
    • 0.06
    • 0.31%
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