Bloomberg News

Oil, Euro Fall as Spain Yields Surge; S&P 500 Advances

June 18, 2012

Oil and the euro fell while Spain’s 10-year yield rose to a record as an increase in bad Spanish loans fueled concern the debt crisis is deepening, overshadowing wins by pro-bailout parties in Greece. Most U.S. stocks rose.

Oil lost 0.9 percent to pace a retreat in commodities. Natural gas rallied on speculation hotter weather will boost demand at power plants. The euro weakened 0.5 percent to $1.2572 at 4 p.m. New York time after strengthening for four straight days. The 10-year Spanish yield jumped as much as 41 basis points to 7.29 percent and ended at 7.16 percent. The Standard & Poor’s 500 Index added 0.1 percent as 11 stocks gained for every 10 that fell on U.S. exchanges. Treasury 10-year yields were little changed at 1.58 percent.

Spain, which has asked euro-region governments for as much as 100 billion euros to help shore up its banks, reported today that bad loans jumped in April to 8.72 percent of total lending, the highest since 1994. German Chancellor Angela Merkel said Greece should not be given more leeway to comply with austerity measures needed to secure international aid after pro-bailout parties won enough seats to form a majority in parliament.

“There are still a lot of sharks out there, a lot of fins protruding to the surface,” Bill Gross, who runs the world’s largest mutual fund at Pacific Investment Management Co., said in an interview on Bloomberg Television. “It’s not a safe environment as long as the EU and the global economy is de- levering, which it continues to do.”

G-20 Meeting

G-20 nations are discussing a mix of measures that will include deficit reduction for some countries and pledges for additional stimulus by others with sounder finances, a Canadian official said as leaders prepare for a two-day summit in Mexico. Federal Reserve policy makers will bring new forecasts to their June 19-20 meeting and probably will mark down their April central-tendency estimate for growth of 2.4 percent to 2.9 percent this year.

Crude oil decreased 0.9 percent to $83.27 a barrel in New York, falling for the first time in three days. Global oil prices may drop as much as 25 percent if multiple euro-area economies ran into severe difficulties at the same time, Andrew Burns, the World Bank’s director of global economic trends, said in an interview in Brussels today.

Raymond James & Associates Inc. cut its forecasts for West Texas Intermediate crude and Brent oil by $12 a barrel each, saying WTI will average $87.63 a barrel this year and Brent $102.12.

Commodities, Euro

Cocoa, lead, gasoline, nickel and zinc each lost more than 1 percent as 16 of 24 commodities tracked by the S&P GSCI Index retreated. Gold fell for the first time in seven days, with the metal for August delivery slipping 0.1 percent to settle at $1,627 an ounce to end the longest rally in almost 10 months.

Natural gas climbed 16 cents, or 6.5 percent, to $2.627 per million British thermal units in New York on forecasts for hotter-than-normal weather in the Midwest and East regions of the U.S. spurred speculation of stronger demand for power plants to run air conditioners.

The euro weakened against 13 of 16 major peers, losing the most against the currencies of South Korea, Australia and South Africa. The dollar strengthened against nine of its 16 major counterparts.

S&P 500 Rebound

Equities recovered from their lows of the day as a gauge of U.S. homebuilder confidence rose to a five-year high and Fitch Ratings said Greece’s elections remove the immediate risk of a ratings cut for the euro zone.

The S&P 500 advanced today after last week capping a second straight weekly gain. The index has rebounded 5.2 percent from a five-month low on June 1. Consumer-discretionary, technology and health-care companies rose at least 0.5 percent for the biggest gains among the 10 main industries in the index, while financial and energy companies had the only declines.

Hewlett-Packard Co., Bank of America Corp. and Alcoa Inc. lost at least 1.5 percent to lead the Dow Jones Industrial Average (INDU) down 23.35 points to 12,741.82 today. Kraft Foods Inc., Home Depot Inc. and United Technologies Corp. had the biggest gains in the 30-stock Dow.

A gauge of homebuilders in S&P indexes rallied 3.5 percent as D.R. Horton Inc. and PulteGroup Inc. paced gains in all 11 of the measure’s stocks. The National Association of Home Builders/Wells Fargo confidence index rose to 29, the highest since May 2007, from a revised 28 in May that was lower than first estimated. The gauge exceeded the median estimate of 28 in a Bloomberg News survey. Readings below 50 mean more respondents said conditions were poor.

The largest U.S. companies are beating the average stock in the S&P 500 by the most in more than a decade, fueled by rising dividends, valuations 31 percent below the historical average and fear.

S&P 100

Companies in the S&P 100 (OEX) from Apple Inc. to Bank of America Corp. have gained 7.7 percent in 2012 through last week, compared with 5.1 percent for a version of the S&P 500 that strips out weightings for market value, the widest margin since 1999, data compiled by Bloomberg show. With price-earnings ratios down 6.6 percent this quarter to 12.7 and payouts at 2.2 percent of share prices, analysts raised buy recommendations for the group to the highest level since 2007.

Costs of options to protect against losses in equities slid today as Greece’s elections eased concern that anti-bailout politicians would take over, jeopardizing the nation’s membership in the euro. The Chicago Board Options Exchange Volatility Index, known as the VIX (VIX), lost 13 percent to 18.32 for its biggest drop since April. Europe’s VStoxx Index (V2X), a measure of Euro Stoxx 50 Index option prices, slipped 13 percent, the most since October, to 29.46.

Among European stocks, Bankia SA and Banco Bilbao Vizcaya Argentaria SA slumped as a gauge of bank shares posted the biggest decline on the Stoxx Europe 600 Index, which closed little changed. Cable & Wireless Worldwide Plc jumped 7.8 percent after its largest investor said it will accept Vodafone Group Plc’s takeover offer.

Greek Stocks

The ASE Index (ASE) of Greek stocks rallied 3.6 percent to the highest level in a month as National Bank of Greece SA and EFG Eurobank Ergasias SA climbed more than 11 percent. The ASE has rebounded 22 percent after reaching the lowest level since 1990 on June 5.

Deposit withdrawals from Greek banks slowed today after the election, three people familiar with situation said. Antonis Samaras of the New Democracy Party raced to build a coalition to keep aid flowing after the anti-bailout party Syriza rejected his offer to join a government. Socialist Pasok leader Evangelos Venizelos, the former finance minister who negotiated the nation’s second rescue, proposed President Karolos Papoulias host a meeting of party leaders tomorrow to get a coalition with the widest possible support.

‘Bought Time’

“You can’t solve these problems overnight, and yes I know we’re two years into this crisis,” John Ryding, chief economist and co-founder of RDQ Economics in New York, told Bloomberg Television’s “Surveillance” program. “But I firmly believe that between the bailout of the Spanish banks last week,” he said, “and the Greek elections this weekend, we have bought time for these institutions to come together.”

Spain’s five-year note yields climbed 41 basis points to 6.55 percent and rates on 30-year bonds jumped 22 basis points to 7.22 percent, also euro-era records. Italy’s 10-year yield climbed 16 basis points to 6.08 percent.

The yield on Germany’s 10-year bund, Europe’s benchmark government debt security, slid three basis points to 1.41 percent after jumping as much as 11 basis points to 1.55 percent. The nation’s one-year yield dipped below zero for the first time since May 30. The U.K. two-year gilt yield slid to as low as 0.173 percent, a record.

Emerging Markets

The MSCI Emerging Markets Index (MXEF) rose 1.1 percent to the highest level in more than a month as gauges in South Korea, Taiwan, Hungary and South Africa led gains. The Hang Seng China Enterprises Index (HSCEI) of mainland companies rose 0.8 percent. India’s Sensex Index dropped 1.4 percent after the central bank unexpectedly kept interest rates unchanged.

As financial markets closed in New York, Brazil’s Finance Minister Guido Mantega said the so-called BRICs group of the largest emerging-market nations will announce their contribution to International Monetary Fund resources at a Group of 20 meeting in Mexico.

Egypt’s EGX 30 Index fell 3.4 percent, extending its decline from this year’s high on March 7 to 22 percent. The country’s ruling military council issued a declaration yesterday after polls closed in the first post-Hosni Mubarak election, giving itself sole authority over its affairs, including the budget and personnel. It also acquired the power to name the 100-member committee that will draft a new constitution.

To contact the reporter on this story: Michael P. Regan in New York at mregan12@bloomberg.net

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


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