Bloomberg News

Euro, Spain 10-Year Bonds Gain on ECB; Stocks Fluctuate

September 05, 2012

Euro Falls, Stock Futures Fluctuate Before ECB

The European Central Bank’s Governing Council will decide tomorrow on a bond-buying proposal that President Mario Draghi says is necessary to ensure the euro’s survival. Photographer: Kiyoshi Ota/Bloomberg

The euro and Spanish 10-year debt advanced on the European Central Bank’s plan to buy bonds, while stocks fluctuated as FedEx Corp. cut its profit forecast and reports showed economies were slowing more than anticipated.

The euro appreciated 0.3 percent to $1.2604 and strengthened against 15 of 16 major peers at 10:58 a.m. in New York. Spanish 10-year yields decreased 15 basis points to 6.42 percent and Italian rates lost 14 basis points, while U.S. Treasuries were little changed. The Standard & Poor’s 500 Index and the Stoxx Europe 600 Index (SXXP) swung between gains and losses. Declines in natural gas, coffee and oil dragged the S&P GSCI Index down 0.7 percent.

ECB President Mario Draghi’s bond-buying proposal involves unlimited purchases of government debt that will be sterilized to assuage concerns about printing money, two central bank officials briefed on the plan said. Sterilization involves draining money from other parts of the financial system to offset the new funds being pumped in. The ECB’s Governing Council will decide tomorrow on bond-buying plans.

“Unlimited and sterilized sounds good because it shows they’re willing to support these sovereigns,” said Eric Viloria, senior currency strategist for Gain Capital Group LLC in New York. “The fact that it’s sterilized means that we shouldn’t have too bad an impact on the euro. Yields are coming lower. The market is reacting positively to that.”

The euro advanced the most against the Canadian and Australian dollars, climbing more than 0.6 percent against each. European stocks and the euro retreated earlier after London- based Markit Economics said euro-area services and manufacturing contracted more than initially estimated in August.

FedEx Forecast

FedEx Corp. lost 1.4 percent after its forecast marked the second time since June the company issued a profit estimate that trailed analysts’ projections. The company is considered an economic bellwether because it moves worldwide goods ranging from documents to pharmaceuticals.

Facebook Inc. (FB:US) advanced 4.9 percent as Chief Executive Officer Mark Zuckerberg said he won’t start selling his holdings in the social-networking company for at least a year.

U.S. payrolls probably grew at a slower pace in August and unemployment exceeded 8 percent for a 43rd month, economists said before a Labor Department report on Sept. 7.

In the Stoxx 600, health and insurance companies led gains. BP Plc, the owner of the Macondo well that caused the worst U.S. oil spill, lost 2.4 percent after the Department of Justice reiterated it will pursue charges of gross negligence.

Manufacturing Shrinks

Norway’s krone slid against 14 of 16 major counterparts after a report showed Norwegian manufacturing unexpectedly contracted for a third straight month in August, adding to signs that the debt crisis is hurting exports in western Europe’s biggest oil producer.

Germany’s 10-year bunds dropped, sending yields up six basis points to 1.45 percent, after the nation received bids for less than its maximum target at an auction.

The MSCI Emerging Markets Index (MXEF) fell 0.8 percent, headed for its lowest close since July 26. South Korea’s Kospi Index slid 1.7 percent as U.S. sales by Hyundai Motor Co. and Kia Motors Corp. missed some analysts’ estimates. The Hang Seng China Enterprises Index of mainland companies dropped 1.9 percent on a report China’s industrial output may slow. Russia’s Micex Index and India’s Sensex slipped at least 0.7 percent.

To contact the reporters on this story: Allison Bennett in New York at abennett23@bloomberg.net; Inyoung Hwang in New York at ihwang7@bloomberg.net

To contact the editor responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net


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