Bloomberg News

Stocks Decline With Euro as U.S. Budget, Greek Aid Loom

November 26, 2012

Stocks Decline With Euro as U.S. Budget Accord, Greek Aid Loom

A financial trader monitors data on computer screens at the Frankfurt Stock Exchange in Frankfurt. Photographer: Ralph Orlowski/Bloomberg

Stocks fell, following the best weekly rally of 2012 for global equities, as U.S. leaders prepared to negotiate a budget deal and European finance chiefs meet on Greek aid. Treasuries rose for the first time in a week.

The MSCI All-Country World (MXWD) Index slipped 0.1 percent as of 4 p.m. in New York after surging 3.9 percent last week. The Standard & Poor’s 500 Index declined 0.2 percent to 1,406.29, paring an earlier drop of as much as 0.8 percent. The euro weakened against most of its major peers. Treasury 10-year yields lost three basis points to 1.66 percent. Gold snapped a three-day advance in London and New York-traded oil fell as 14 of 24 commodities tracked by the S&P GSCI Index dropped.

While U.S. Republican lawmakers favor raising tax revenue by limiting deductions rather than by increasing rates, Democrats are pushing for higher rates on upper-income earners. Leaders need to find a compromise to avoid triggering a so- called fiscal cliff of $607 billion in tax increases and spending cuts in January that the Congressional Budget Office said may lead to a recession. Euro-area finance ministers meet today in Brussels to negotiate a bailout payment for Greece.

“People are returning to work and with eyes wide open, they see news that’s less good than when they left,” Lawrence Creatura, who helps oversee $370 billion as a Rochester, New York-based fund manager at Federated Investors Inc., said in a telephone interview. “The probability of a smooth resolution to the fiscal seems to have declined,” he said. “Everyone is sorting through the retail data and it looks like results were mixed. Rather than an outright robust season, it’s one where there’ll be winners and losers.”

Retailers Retreat

Macy’s Inc., Big Lots Inc. and Nordstrom Inc. lost at least 2.7 percent to help lead the S&P 500 Retailing Index (S5RETL) lower following a 5.6 percent rally in the previous five sessions. Stores are extending deals into Cyber Monday and beyond to try to sustain a 13 percent gain in Thanksgiving weekend sales. Spending in stores and online rose to $59.1 billion in the four days starting Nov. 22, the National Retail Federation said. A year ago, sales grew 16 percent over the holiday weekend.

The S&P 500 retreated following last week’s 3.6 percent rally, the biggest since June, which was triggered by optimism Congress would avoid the fiscal cliff and data from China to Germany that bolstered optimism in global growth.

Senator Richard Durbin of Illinois, the second-ranking Democrat in the chamber, said yesterday on ABC’s “This Week” that any deal to reduce the budget deficit should allow the top tax rate to rise. Republican Senator John McCain of Arizona said on “Fox News Sunday” that he would be “very much opposed” to raising taxes and advocated closing “loopholes,” including limits on deductions for charitable giving and home mortgage interest payments.

‘Immediate Focus’

“Fiscal cliff negotiations are likely to be the immediate focus this week,” Jim Reid, a strategist at Deutsche Bank AG in London, wrote in a report. “As a reminder of the gathering urgency there are only 36 days left until the fiscal cliff is due to kick-in, and from a practical stand point, exactly four weeks until the Christmas break to bridge the outstanding gap between the Democrats and Republicans.”

Telephone, energy and consumer-staples companies led losses among seven of the 10 main industry groups in the S&P 500, with Coca-Cola Co., American Express Co. and Microsoft Corp. posting the biggest losses in the Dow Jones Industrial Average. Exelon Corp. jumped 2.6 percent to lead a rally in utilities after Deutsche Bank advised buying the shares, saying its 34 percent drop this year may provide an opportunity for value investors.

UnitedHealth Group Inc. slipped 0.7 percent after providing a profit forecast below analysts’ estimates. DreamWorks Animation SKG Inc. dropped 5.2 percent as “Rise of the Guardians” opened in fourth place in cinemas over the Thanksgiving weekend. Knight Capital Group Inc. (KCG:US) surged 13 percent after a person with direct knowledge of the matter said the trading firm expects to receive acquisition proposals as early as this week.

European Markets

The Stoxx 600 (SXXP) fell for the first time in six days as 17 of 19 industry groups retreated. Barclays Plc sank 5.4 percent as Qatar Holding LLC sold the last of the warrants it acquired during the financial crisis, triggering a 771 million-pound ($1.24 billion) stock offering by the banks that arranged the transaction. Straumann Holding AG advanced 2.3 percent as Vice Chairman Thomas Straumann sold a 10 percent stake in the dental- implant manufacturer to Government of Singapore Investment Corp.

The euro weakened against 13 of 16 major peers, slipping 0.5 percent against the yen and less than 0.1 percent versus dollar. The yen advanced against all 16 of its major counterparts.

Greek Options

The European Central Bank is considering new ways to reduce Greece’s funding gap by using the Greek debt in its investment portfolios, three euro-area officials said. National central banks of the euro area hold Greek bonds in their investment portfolios and agreed in February to give any profits back to Greece. The issue has been reopened and the ECB is now looking at options including rolling over the holdings or allowing the Greek government to buy them back, the officials said on condition of anonymity.

German 10-year bunds rose, pushing the yield down two basis points to 1.41 percent. Italian 10-year bond yields were little changed at 4.75 percent and rates on similar-maturity Spanish yields debt were little changed at 5.62 percent. Hungary’s five- year note yield rose three basis points after S&P downgraded the country’s debt late on Nov. 23.

The cost of insuring against default on corporate date rose, snapping five days of declines, with the Markit iTraxx Europe index of credit-default swaps linked to 125 investment grade companies climbing four basis points to 125.

Gold, Oil

Oil declined 0.6 percent to $87.74 a barrel today. Natural gas, cocoa and coffee lost at least 1.3 percent for the biggest declines in S&P GSCI Index, while cotton, zinc, aluminum and Kansas wheat rose the most.

Gold for immediate delivery fell 0.2 percent to $1,749.05 an ounce. Soybeans advanced 0.4 percent on concern dryness in Brazil and rain in Argentina may threaten supply as demand increases in China, the world’s biggest buyer. Prices climbed 2.6 percent last week, the most since the five days ended Aug. 24.

The MSCI Emerging Markets Index (MXEF) slipped 0.1 percent. Taiwan’s Taiex index climbed 1.1 percent after Premier Sean Chen asked the government to prepare a proposal to boost stocks. The Shanghai Composite Index slipped 0.5 percent while Russia’s Micex Index lost 0.7 percent and India’s Sensex added 0.2 percent. Brazil’s Bovespa slipped 1.5 percent, retreating for the first time in three sessions as a drop in commodities weighed on producers.

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