Bloomberg News

U.S. Stocks Fluctuate as Fed Meets; Europe Shares Decline

July 31, 2012

European Stocks Fall, Euro Pares Advance on Earnings

Visitors pass beneath giant screens displaying share price information inside the Madrid Stock Exchange in Madrid. Photographer: Angel Navarrete/Bloomberg

U.S. stocks swung between gains and losses as investors awaited the Federal Reserve’s assessment of the economy and potential plans to spur growth. European shares slid from a four-month high as earnings disappointed.

The Standard & Poor’s 500 Index was little changed near 1,385 at 11:50 a.m. in New York. The Stoxx Europe 600 Index dropped 1 percent, halting a three-day rally of more than 5 percent. The euro was up 0.5 percent at $1.2316. The S&P GSCI Index of commodities lost 0.9 percent, reversing an earlier gain of 0.4 percent, as oil slid 1.3 percent to $88.63 a barrel. Corn retreated after rallying to a record amid a U.S. drought. U.S. and German bonds rose.

The Fed begins a two-day meeting today as U.S. government data showed personal spending stagnated in June, while a private report said consumer confidence topped estimates. Chairman Ben S. Bernanke will probably forgo announcing a third round of large-scale asset purchases tomorrow, and is more likely to wait until September to unveil plans to buy $600 billion in housing and government debt, according to median estimates of economists in a Bloomberg News survey.

“The market is on a wait-and-see mode,” Frederic Dickson, who helps oversee about $32 billion as chief market strategist at D.A. Davidson & Co. in Lake Oswego, Oregon, said in a phone interview. “Investors tend to sit on their hands waiting for the policy statement.”

Fed Predictions

Eighty-eight percent of economists say the Federal Open Market Committee will refrain from starting new purchases this week. Forty-eight percent say the FOMC will announce the buying at its Sept. 12-13 meeting, according to the July 25-27 survey of 58 economists.

Coach Inc. tumbled 17 percent for the biggest drop in the S&P 500 after the largest U.S. luxury handbag maker reported revenue that trailed analysts’ estimates.

Apple Inc. rallied 2.4 percent to pace gains in technology shares as two people familiar with the matter told Bloomberg News that it is preparing to introduce its next version of the iPhone on Sept. 12. The company is considering a stock split that could prompt its inclusion in the Dow Jones Industrial Average, according to a report from Sanford C. Bernstein & Co.

Earnings Season

Pfizer Inc., the world’s largest drugmaker, rose 3.1 percent as it said it will file in mid-August to sell as much as 20 percent of its animal-health unit in an initial public offering and reported profit that beat analyst estimates as a result of cost cutting.

Of the 322 companies in the S&P 500 that reported quarterly results so far, 73 percent beat analysts’ earnings estimates, according to data compiled by Bloomberg.

Declines in European stocks were triggered as worse-than- forecast results from UBS AG and BP Plc overshadowed speculation central banks will do more to support the economy. European shares extended losses earlier as German finance officials said in an e-mail that rules of the permanent European bailout fund don’t foresee a banking license to allow refinancing at the European Central Bank.

ECB officials will announce an interest-rate decision on Aug. 2 after ECB President Mario Draghi pledged last week to do whatever it takes to preserve the euro. Earnings from UBS and BP followed data showing South Korea’s industrial production fell for the first time in three months and Taiwan’s gross domestic product unexpectedly shrank.

“There is a lot of hope that both the Fed and the European Central Bank take actions to support their economies,” said Pierre Mouton, a fund manager who helps oversee $6.5 billion at Notz Stucki & Cie. in Geneva. “No one expected earnings to be very good. After a couple of spectacular trading sessions, it’s an opportunity to lock in gains.”

European Markets

The Stoxx 600’s drop today brought this month’s gain to 4.1 percent. UBS (UBSN), Switzerland’s largest bank, tumbled 5.9 percent after saying second-quarter net income fell 58 percent.

BP retreated 4.4 percent, the most since September, as Europe’s second-biggest oil producer reported a quarterly net loss of $1.4 billion, compared with a profit of $5.7 billion a year earlier. After one-time items and changes in inventories, earnings missed analyst estimates. Anheuser-Busch InBev NV (ABI), the world’s largest brewer, slid 3.2 percent as second-quarter beer volume unexpectedly declined.

The 10-year U.S. Treasury yield lost three basis points to 1.47 percent today, compared with a record low of 1.379 percent on July 25. Policy makers are looking for new monetary tools after the U.S. central bank lowered its benchmark interest rate to near zero in December 2008 and purchased $2.3 trillion of securities to spur the economy.

Monthly Moves

The 17-nation European currency dropped about 3 percent against the dollar in July, on course for its third monthly decline in the past four. It slid almost 5 percent versus the yen in the period. The Australian dollar rose 0.1 percent against the greenback today, headed for its second monthly gain. The yen appreciated versus all its major peers in July except the so-called Aussie.

The yield on the German bund dropped 29 basis points in July, with the nation’s debt returning 1.40 percent in the month through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. The Spanish 10-year yield increased 14 basis points to 6.75 percent today, down from a euro-era record 7.75 percent on July 25. The similar-maturity Italian rate added 10 basis points.

The MSCI Emerging Markets Index of stocks rose 0.6 percent today, poised for its fourth consecutive gain. The gauge has advanced 1.9 percent this month.

South Korea’s Kospi Index jumped 2.1 percent today and Taiwan’s Taiex Index added 1.6 percent. The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong increased 1.6 percent. Hungary’s BUX Index and Russia’s Micex lost more than 1.3 percent each.

To contact the reporters on this story: Michael P. Regan in New York at mregan12@bloomberg.net; Rita Nazareth in New York at rnazareth@bloomberg.net

To contact the editor responsible for this story: Chris Nagi at chrisnagi@bloomberg.net


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