Bloomberg News

German Bonds Rally as Euro Weakens; Natural Gas Tumbles

August 06, 2012

European Stocks, Euro Drop on Monti Warning

A visitor uses his mobile phone inside the Madrid Stock Exchange in Madrid. Photographer: Angel Navarrete/Bloomberg

German 10-year bond yields dropped from a one-month high and the euro weakened. European stocks erased earlier losses, while natural gas and soybeans led commodities lower on forecasts of a break in the U.S. heatwave.

The yield on the German 10-year bund slipped seven basis points to 1.36 percent at 10:40 a.m. in London, while the Spanish two-year rate slid 44 basis points. The euro depreciated 0.2 percent. Natural gas fell 2.5 percent and soybeans slid 2.1 percent. The Stoxx Europe 600 Index added less than 0.1 percent and Standard & Poor’s 500 Index futures rose 0.2 percent. Knight Capital (KCG:US) Group Inc., the firm driven to the brink of bankruptcy by trading losses last week, tumbled 29 percent.

Greece and its creditors agreed on the need for more economic discipline to comply with bailout terms, while Italian Prime Minister Mario Monti said the euro area is showing signs of “psychological dissolution.” Bank of Italy Governor Ignazio Visco suggested the European Central Bank may be willing to counter further signs of a slowdown by cutting interest rates, according to an interview published in la Repubblica.

“It’s fair to say that many sources of volatility and risk remain over the next couple of months but if we can get to a stage where the ECB aggressively buys bonds then it will give Europe more time to try to find a growth miracle,” Jim Reid, a strategist at Deutsche Bank AG in London, wrote in a report.

The two-year German note yield was at minus 0.051 percent, below zero for the 22nd consecutive day. The similar-maturity Italian rate declined 16 basis points, with the Portuguese yield sliding 58 basis points. The Netherlands, Norway and France are scheduled to sell bills today.

Default Risk

The cost of insuring against default on sovereign debt rose, with the Markit iTraxx SovX Western Europe Index of credit-default swaps on 15 governments increasing three basis points to 252.

The euro dropped 0.2 percent versus the yen after rising 0.5 percent last week. Sweden’s krona depreciated against all 16 major peers.

More than two shares rose for every one that fell in the Stoxx 600. European stocks rose for a ninth week in the five days ended Aug. 3, extending the longest winning streak since January 2006. The Stoxx 600 climbed 13 percent over the period as policy makers eased repayment terms for Spanish banks and optimism grew central banks will announce stimulus measures.

Richemont Forecast

Cie. Financiere Richemont SA (CFR) rose 6.2 percent today, the most in more than two months, after the second-biggest luxury goods company said it expects fiscal first-half profit to rise 20 percent to 40 percent as currency shifts boost revenue. PostNL NV tumbled 5.7 percent after the Dutch postal company forecast full-year earnings at the lower end of a previously announced range.

The drop in S&P 500 futures indicated the U.S. gauge will decline from a three-month high. The 10-year U.S. Treasury yield declined one basis point to 1.55 percent.

Knight Capital tumbled in early trading after the market maker was said to agree to a $400 million cash infusion through the sale of convertible securities. Getco LLC, Blackstone Group LP, Stifel Nicolaus & Co. and TD Ameritrade Holding Corp. are investing, said two people with direct knowledge of the matter, who asked not to be named because the agreements aren’t public. Stephens Inc. and Jefferies Group Inc. are taking part and the securities will represent a 70 to 75 percent stake in the company, one of the people said.

The S&P GSCI gauge of 24 commodities declined 0.4 percent. Grains, oilseeds and natural gas dropped.

The MSCI Emerging Markets Index (MXEF) rose 1.2 percent, poised for its highest close since May 11. South Korea’s Kospi (KOSPI) index surged 2 percent and the Shanghai Composite (SHCOMP) rose 1 percent, taking its two-day rally to 2.1 percent, the best since May. China plans to let workers choose for as much as 30 percent of their wages to be paid in the shares of their publicly-traded employers. Benchmark gauges in India, Poland and the Czech Republic gained more than 1 percent.

To contact the reporters on this story: Stephen Kirkland in London at skirkland@bloomberg.net;

To contact the editor responsible for this story: Mark Gilbert at magilbert@bloomberg.net


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