Bloomberg News

Yen Extends Weekly Slump While U.S. Stocks Little Changed

January 11, 2013

Commodities Drop on China Inflation as Stocks Pare Declines

Crop prices fell before the U.S. Department of Agriculture’s monthly supply and demand report, due at 12 p.m. in Washington. Photographer: Diego Giudice/Bloomberg

The yen slid to the weakest level since June 2010 versus the dollar, extending its longest streak of weekly losses since 1989, as Japan planned new monetary stimulus. Shares of U.S. banks retreated as Wells Fargo & Co.’s lending margin shrank. The euro and Italian bonds rose.

The yen weakened 0.4 percent to 89.17 per dollar at 4:34 p.m. in New York to extend a ninth straight weekly drop. The Standard & Poor’s 500 Index slipped less than 0.1 percent from a five-year high while the VIX Index, the benchmark gauge of U.S. options, slid to the lowest level since June 2007. The S&P GSCI commodities gauge fell 0.5 percent on concern accelerating inflation in China will halt stimulus efforts. The euro jumped to a nine-month high of $1.3342 as Goldman Sachs Group Inc. predicted it may reach $1.37.

The yen slid as Japanese Prime Minister Shinzo Abe’s government planned to spend 10.3 trillion yen ($116 billion) in stimulus efforts that may weaken the currency. China’s inflation quickened to a seven-month high last month, the government said today after exports and credit growth underscored the strength of an economic rebound. In the U.S., investors awaited almost 40 quarterly reports from S&P 500 companies next week to gauge the outlook for earnings and the economy.

“Abe announced fiscal stimulus in Japan, which is what sent the yen lower against the dollar,” Richard Franulovich, a senior currency strategist at Westpac Banking Corp. in New York, said in a telephone interview. “We were expecting some sort of fiscal program, and they basically put some flesh on the bone.”

Yen Performance

The yen weakened against 13 of 16 major peers today, with South Korea’s won and the euro climbing almost 1 percent to lead gains against Japan’s currency. The yen weakened more than 1 percent for the week against all 16 peers except South African’s rand. Japan’s Nikkei 225 Index jumped 1.4 percent today, reaching the highest level since February 2011.

Telephone, industrial and financial companies led declines among the 10 main industry groups in the S&P 500, while consumer-staples, technology and energy companies rose the most. The VIX, as the Chicago Board Options Exchange Volatility Index is known, lost 1 percent to 13.36, its lowest closing level since June 2007.

Wells Fargo slipped 0.9 percent, paring a drop of as much as 2.5 percent, after the largest U.S. home lender’s net- interest margin, which represents the gap between what banks pay depositors and what’s earned on loans, fell 10 basis points from the third quarter to 3.56 percent. Banks in the S&P 500 lost 0.9 percent as a group for the biggest decline among 24 groups.

Bank Earnings

Seventeen of the 24 companies in the KBW Bank Index will report earnings next week, including JPMorgan Chase & Co. on Jan. 16 and Citigroup Inc. and Bank of America Corp. on Jan. 17.

Banks could face lower profits on home loans this year as minutes of the Fed’s December meeting, released Jan. 3, showed policy makers may end $85 billion monthly bond purchases in 2013. That could “spoil the party” for lenders that profited from a more than 20 percent jump in mortgage originations last year, according to Deutsche Bank AG.

Chevron Corp. (CVX:US), the second-biggest U.S. energy company, rose 1.1 percent after saying earnings increased from the third quarter as rising prices blunted the impact of declining oil output. The company is scheduled to report full results on Feb. 1.

The yield on 10-year Treasuries lost three basis points to 1.86 percent as yields near the highest level since May lured investors.

Commodity Movers

Oil slipped 0.3 percent to $93.56 a barrel in New York, retreating from the highest level since September, and Brent crude lost 1.1 percent to $110.64 in London. China is the biggest buyer of industrial metals and energy. Silver, gasoline and heating oil lost at least 1.4 percent to lead losses in 16 of 24 commodities tracked by the S&P GSCI.

“The good news about China is that it is in a trajectory of improvement,”Bruce McCain, chief investment strategist at the private-banking unit of KeyCorp in Cleveland, said in a phone interview. His firm oversees $20 billion. “The bad news is that it may also boost inflation. In the U.S., people will be focused on earnings. It’s not great yet, but it certainly has the potential for improvement as we get further into the year.’

European Markets

The Stoxx Europe 600 Index lost 0.1 percent today as basic- resource companies led declines, extending a weekly decline to 0.3 percent.

Cap Gemini SA (CAP), France’s biggest computer-services company, rose 2.3 percent after rival Infosys Ltd. (INFO) raised its full-year sales forecast. Getinge AB sank 8.2 percent, the biggest decline since March 2009, as the Swedish maker of sterilization systems said demand for its products weakened during the fourth quarter.

The yield on Italy’s two-year notes fell one basis point to 1.36 percent. The government sold 3.5 billion euros ($4.7 billion) of debt maturing in December 2015 at an average yield of 1.85 percent, down from a rate of 2.50 percent at the previous sale of the securities on Dec. 13.

Italian 10-year bonds lost three basis points to 4.13 percent and the yield difference over similar-maturity German bunds narrowed to 255 basis points. The spread reached as little as 248 basis points, less than 250 basis points for the first time since July 22, 2011.

Euro Climbs

The euro strengthened against all 16 major peers today extending its weekly gain against the dollar to 2.1 percent for its biggest rally since September.

‘‘We recommend long euro-dollar positions with a target of $1.37 and a stop at $1.29,” Goldman Sachs strategists including London-based Thomas Stolper wrote in a note to investors today. A long position is a bet that an asset will rise.

The MSCI Emerging Markets Index (MXEF) slipped 0.4 percent, capping its first weekly drop in two months. The Shanghai Composite Index (SHCOMP) sank 1.8 percent

Hyundai Motor Co., South Korea’s biggest automaker, led the Kospi index 0.5 percent lower after the won gained to a five- month high against the dollar. Infosys Ltd., India’s second- largest software exporter, rallied 17 percent, the most on record, after raising its sales forecast. Brazil’s Bovespa index slipped 0.3 percent.

Equity mutual funds recorded the second-highest inflows on record in the first week of the year as stocks rallied on signs that the global economy is gaining momentum.

About $22 billion flowed into equity funds around the world, according to data compiled by research firm EPFR Global going back to 1996. Emerging-market equity funds took in the most money on record in the week ended Jan. 9, Morgan Stanley wrote in a report today that cited EPFR data. The MSCI All- Country World Index jumped 3.1 percent in first week of 2013 and the S&P 500 rallied 4.6 percent.

To contact the reporters on this story: John Detrixhe in New York at jdetrixhe1@bloomberg.net; Rita Nazareth in New York at rnazareth@bloomberg.net; Joseph Ciolli in New York at jciolli@bloomberg.net

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


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