Most U.S. stocks fell following the biggest two-day rally of the year, while European equities rose for a third day and Spanish bonds rallied on speculation policy makers will take action to ease the region’s debt crisis. Corn jumped to a record as an American drought persisted.
The Standard & Poor’s 500 Index (SPXL1) slipped 0.1 percent to 1,384.56 at 2:38 p.m. in New York after jumping 3.6 percent over the previous two sessions, its biggest back-to-back gain since Dec. 1. About three stocks retreated for every two that rose on U.S. exchanges. The Stoxx Europe 600 Index surged 1.6 percent to extend a three-day rally to more than 5 percent. U.S. Treasury notes halted a three-day retreat to send rates down four basis points to 1.51 percent. The euro depreciated 0.5 percent to $1.2257, snapping a three-day gain. Corn, wheat and soybean futures rallied more than 2 percent.
European Central Bank President Mario Draghi met with U.S. Treasury Secretary Timothy Geithner in Frankfurt today after leaders in Berlin, Paris and Rome backed him by saying they will do what’s needed to protect the 17-nation euro. Spain’s economy shrank 0.4 percent in the second quarter, the National Statistics Institute in Madrid said today. The Federal Reserve will start a two-day meeting tomorrow.
“People looked at their portfolios over the weekend and, after a move like we saw, that usually brings more sellers and people rearranging their positions,” Rick Fier, director of equity trading at Conifer Securities LLC in New York, said in a telephone interview. His firm oversees $12 billion in assets. “It’s an extremely frustrating market. People that were shorting lost it all in two days, people that were more long came back but nobody is killing it.”
JPMorgan Chase & Co. lost 2.5 percent for the biggest decline in the Dow Jones Industrial Average as Deutsche Bank AG cut its recommendation on the stock. Hewlett-Packard Co., Boeing Co. and Home Depot Inc. fell more than 1 percent as 19 of 30 stocks in the Dow declined, while Travelers Cos. and Coca-Cola Co. climbed more than 1 percent for the biggest gains.
The Shaw Group Inc. (SHAW:US) jumped 55 percent, its biggest advance since going public in 1993, after Chicago Bridge & Iron Co. agreed to buy the company for about $3 billion to expand its portfolio of engineering and construction projects across the energy industry.
Fed policy makers meet this week before a jobs report to decide whether additional stimulus is needed to combat a slowdown in the world’s biggest economy. Labor Department data on Aug. 3 is forecast by economists to show U.S. employers added 100,000 jobs to payrolls in July and the unemployment rate held at 8.2 percent. Other data may show manufacturing stagnated in July and consumer confidence fell for a fifth month.
“It’s increasingly likely that the Fed and European Central Bank will ease further by September,” said Masamichi Adachi, a senior economist at JPMorgan Securities in Tokyo and a former central bank official. In Japan, the government may implement a supplementary budget by September, with the central bank expanding asset purchases, Adachi said.
The Stoxx 600 (SXXP) has gained for eight straight weeks, its longest rally in more than six years. Air France-KLM Group surged 19 percent as Europe’s biggest airline reported a narrower-than-estimated loss. JC Decaux SA sank 6.9 percent after the French billboard company said so-called organic revenue was lower than forecast in the second quarter.
The euro declined 0.9 percent versus the yen, falling for the first time in four days.
The Swedish krona rose against all 16 of its most-traded peers, appreciating 1.7 percent against the euro and 1.2 percent versus the dollar after Statistics Sweden data showed gross domestic product unexpectedly accelerated in the second quarter. GDP grew 1.4 percent, beating a median forecast for a gain of 0.2 percent in a survey of economists by Bloomberg.
The cost of insuring European corporate and sovereign bonds using credit-default swaps declined for a fourth day. The Markit iTraxx Crossover Index of swaps on 50 mostly junk-rated European companies fell 15 basis points to 626. The Markit iTraxx SovX Western Europe Index tied to the debt of 15 governments dropped 20 basis points to 255.
Draghi’s proposal involves Europe’s rescue fund buying government bonds on the primary market, buttressed by ECB purchases on the secondary market to ensure transmission of its record-low interest rates, two central bank officials said July 27 on condition of anonymity. Further ECB rate cuts and long- term loans to banks are also up for discussion, one of the officials said.
“Given the sheer scale of the structural adjustment that is still needed in Europe and accelerating capital flight from peripheral countries to the core, it will take extraordinary efforts from the ECB to implement lasting solutions,” said Kaha Kiknavelidze, London-based managing partner at Rioni Capital Partners LLP, an emerging-markets hedge fund that manages $30 million.
Draghi must now deliver or face a renewed selloff on bond markets, where soaring Spanish and Italian yields have fueled speculation that the monetary union could fall apart. The ECB chief is also attempting to win over Bundesbank President Jens Weidmann, a critic of ECB bond purchases.
Figures tomorrow may show euro-area unemployment climbed to a record 11.2 percent last month, a Bloomberg survey showed.
Italian 10-year bonds stayed lower after the nation sold 5.5 billion euros ($6.8 billion) of government debt due between 2015 and 2022. The 10-year yield climbed seven basis points to 6.03 percent. The rate on Italian five-year notes added three basis point to 5.38 percent after increasing as much as 12 points earlier.
The MSCI Emerging Markets Index (MXEF) added 0.7 percent to a three-week high. The Hang Seng China Enterprise Index (HSCEI) of mainland companies listed in Hong Kong gained 1.3 percent, while the BSE India Sensitive Index (SENSEX) added 1.8 percent. The Micex Index jumped 1.5 percent in Moscow. The Shanghai Composite Index (SHCOMP) fell 0.9 percent to the lowest level since March 2009.
Japan’s bonds fell, sending 10-year yields up the most in seven weeks. Japan’s industrial output decreased 0.1 percent in June from May, when it declined 3.4 percent, the Trade Ministry said. The median estimate of 29 economists surveyed by Bloomberg News was for a 1.5 percent increase.
The nation’s benchmark 10-year bond, which saw yields slide to nine-year lows last week, led declines amid speculation traders sold the notes ahead of an auction on Aug. 2. The 10- year yield advanced 3 1/2 basis points, or 0.035 percentage point, to close at 0.78 percent, according to Japan Bond Trading Co., Japan’s largest interdealer debt broker. That was the highest level since July 12 and the sharpest rise since June 5.
December-delivery corn climbed as much as 3.1 percent to $8.1775 a bushel on the Chicago Board of Trade and traded recently at $8.1450 a bushel. Soybeans for November delivery jumped as much as 2.9 percent to $16.648 a bushel and wheat for September delivery gained as much as 2.4 percent to $9.1975 a bushel.
The drought in the Midwest is unlikely to be broken in the six to 10 days from July 27, as rains that fell in many parts of the region were not enough to improve conditions, Telvent DTN Inc. said.
Crop conditions are the poorest since 1988 and parts of the U.S. are suffering from the worst drought since 1956. Corn has soared 61 percent since June 15, signaling higher food prices and boosting costs for producers of meat and ethanol.
Oil for September delivery fell 0.5 percent to $89.71 a barrel in New York as a stronger dollar weighed on crude.
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