Bloomberg News

Stocks Drop With Industrial Metals, Euro; Treasuries Rise

April 17, 2013

European Stocks Fall With Copper as Yen Weakens

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

U.S. stocks sank, erasing yesterday’s rally, amid a plunge in industrial metals, disappointing earnings and concern Apple Inc.’s iPhone sales may miss forecasts. The euro slid as Germany’s central bank chief reportedly said European policy makers may cut rates if needed.

The Standard & Poor’s 500 Index fell 1.4 percent to 1,552.01 at 4 p.m. in New York. Germany’s DAX index (DAX) slid 2.3 percent and erased its gain for the year after European auto sales reached a 20-year low. Treasuries rose, with 10-year yields touching lows of the year, as concern that terrorism is increasing in the U.S. fueled demand for the safest assets. The euro fell against 14 of 16 major peers. Oil dropped to a four- month low in New York, while copper sank 3 percent in London and tin and lead slid more than 2 percent. Gold for immediate delivery rose 0.7 percent to $1,377.43 an ounce.

Bank of America Corp. led financial shares lower after shortfalls in mortgage banking and trading marred first-quarter results. Industrial metals declined after the International Monetary Fund lowered its forecast for economic growth in China yesterday. The Federal Reserve said the U.S. economic expansion remained “moderate” amid gains in manufacturing, housing and autos that offset weakness in defense-related industries in some regions, according to its Beige Book business survey.

“There’s been a pattern in earnings where you see a slowing down in improvement,” Kevin Caron, a Florham Park, New Jersey-based market strategist at Stifel Nicolaus & Co., which oversees about $130 billion, said by telephone. “Stocks need to pause as investors recognize that forward-looking estimates are too high and need to come down or we need to see a genuine improvement in the economy to justify where stocks are today.”

April Peaks

U.S. equities began short-term declines in April during each of the last three years. The S&P 500 fell 9.9 percent between April 2 and June 1 of last year and peaked on April 29, 2011, before a 19 percent slide ending that October. The index tumbled 16 percent from a high in April 2010 to July 2 of that year.

The market may be due for a similar pullback this year because its advance since mid-November has been “out of sync” with weak earnings and slower economic growth, UBS AG strategist led by Jonathan Golub wrote in a report.

“While we’re not inclined to invest based on some simple rule or rhyme, those investors who followed the old adage ‘Go Away in May’ have done quite well in each of the past three years,” UBS said in the report dated yesterday. “We believe that another spring break is likely to materialize and that now is a good time to begin dialing back on risk.”

The S&P 500 erased yesterday’s 1.4 percent rally and extended its retreat from a record on April 11 to about 2.6 percent.

U.S. Movers

Bank of America lost 4.7 percent, the most since November, to lead the KBW Bank Index (BKX) down 2 percent to a six-week low. Textron Inc. slumped 13 percent, the biggest drop in four years, after lowering its forecast for business-jet sales. Caterpillar Inc. slid 1.4 percent after Macquarie Group Ltd. cut its rating on the shares to neutral.

Apple closed 5.5 percent lower and traded below $400 for the first time since December 2011 after its audio-chip supplier, Cirrus Logic Inc., predicted that sales would miss estimates because of unsold inventory. Cirrus Logic slid 16 percent, the most since October 2011.

Some 16 members of the S&P 500 (SPX) are reporting earnings today, including American Express Co. and EBay Inc. after the close of trading. Analyst predict earnings decreased 1.4 percent in the period, the first year-over-year decline since 2009, according to estimates compiled by Bloomberg. Earnings beat estimates at 69 percent of the 55 companies in the S&P 500 that reported results so far while 51 percent topped revenue estimates, according to data compiled by Bloomberg.

‘Driving the Bus’

Stocks and Treasury yields fell to their lows of the session after the White House said a letter addressed to President Barack Obama containing a substance that the FBI said was positive for the poison ricin in preliminary testing was intercepted today, a day after a tainted letter targeted a U.S. senator. The letters fueled concern about terrorism following the April 15 bombings at the Boston Marathon.

“Are the ricin incidents worth a point or two of this selloff? Probably, but it’s not driving the bus,” Mike Shea, a managing partner at New York-based brokerage firm Direct Access Partners LLC, said in an interview.

Ten-year Treasury yields lost three basis points to 1.70 percent and fell as low as 1.67 percent, the least since Dec. 12.

Fed ‘Rethink’

James Bullard, president of the Federal Reserve Bank of St. Louis, said U.S. inflation has fallen too far below the central bank’s 2 percent goal and a further drop could prompt increased bond buying. Consumer prices rose 1.3 percent in February from a year earlier, according to the Fed’s preferred gauge of inflation.

“Inflation should be closer to target than it is and we should defend the inflation target from the low side,” Bullard told reporters today after a speech in New York. “If it doesn’t start to turn around here soon, I think we’ll have to rethink where we are in our policy.”

The Stoxx Europe 600 Index (SXXP) sank 1.5 percent for a fourth straight decline, its longest losing streak since January. The retreat extended the drop over the past four days to 3.8 percent, its worst plunge since July, and left the regional benchmark index at its lowest level of the year. A gauge of European mining shares retreated 2.4 percent to the lowest since 2009 on a closing basis as BHP Billiton Ltd. and Rio Tinto Group slid more than 3 percent.

DAX Slumps

The DAX index erased its gain for the year. The German benchmark tumbled more than 2 percent in 25 minutes during the first hour of trading. Some 14,000 DAX Index futures contracts expiring in June changed hands in a five minute period about 9:50 a.m. in Frankfurt today, more than 15 times the 20-day average volume for that time of day, according to data compiled by Bloomberg.

Bayer, Germany’s largest drugmaker, retreated 4.3 percent after a U.S. court ruled that its patent to produce the birth- control pill Yaz was invalid

Bayerische Motoren Werke AG and Volkswagen AG lost more than 2.7 percent as a gauge of automakers posted the biggest drop in the Stoxx Europe 600 Index. .

Car Sales

European car sales slid to a 20-year low last month. Registrations in March fell 10 percent to 1.35 million vehicles, their 18th consecutive monthly decline, the Brussels-based European Automobile Manufacturers’ Association, or ACEA, said in a statement. First-quarter deliveries in the region dropped 9.7 percent to 3.1 million cars.

The euro extended losses versus the yen and dollar after Dow Jones reported Bundesbank President Jens Weidmann said the European Central Bank may cut interest rates if new information warrants the move. The shared currency weakened 1.1 percent to $1.3034.

Italy’s borrowing costs dropped to the lowest in almost three months, with 2-year yields losing six points to 1.38 percent. The yield on Slovenia’s 2022 dollar bonds sank 47 basis points to 5.85 percent as of 5:03 p.m. in Ljubljana. Slovenia, the first post-communist nation to adopt the euro, sold 1.1 billion euros ($1.4 billion) of 18-month bills, more than double the amount planned

The G-20 finance ministers and central bankers meet for two days from tomorrow in Washington before International Monetary Fund and World Bank talks.

Commodity Watch

Copper, crude oil and lead lost more than 2 percent to lead losses in 16 of the 24 commodities tracked by the S&P GSCI. Oil prices dropped 2.3 percent to $86.68 a barrel after the Energy Information Administration said output climbed to 7.2 million barrels a day, the most since July 1992, and gasoline and diesel demand decreased. BNP Paribas SA cut its 2013 forecasts for Brent and WTI.

Spot gold rebounded for a second day after falling 9.1 percent two days ago, the most in three decades. Futures fluctuated before closing lower for the third time in four days.

Investors are dumping gold funds at the fastest pace in two years in favor of equities, compounding a slump that has wiped $560 billion from the value of central bank reserves.

Exchange-traded products linked to gold dropped $37.2 billion in 2013 as the metal reached a two-year low yesterday. Gold funds suffered net outflows of $11.2 billion this year through April 10, the most since 2011, while global and U.S. equity funds had net inflows of $21.25 billion, according to Cambridge, Massachusetts-based EPFR Global.

Central banks are among the biggest losers because they own 31,694.8 metric tons, or 19 percent of all the gold mined, according to the World Gold Council in London. After rallying for 12 straight years, the metal has tumbled 28 percent from its September 2011 record of $1,923.70 an ounce.

Carbon Plunges

Carbon permits under the European Union’s emissions-trading system slipped 11 percent to 2.75 euros a metric ton in London. The December 2013 carbon contract plunged 35 percent yesterday, the most on record, after lawmakers rejected an emergency plan to address a surplus of allowances.

The Swedish krona weakened after policy makers pushed back the timing of likely interest-rate increases. The krona slid to its weakest level since February against the euro, dropping as much as 1.3 percent. Sweden’s central bank left its benchmark interest rate unchanged for a second meeting and delayed tightening to the second half of 2014 after the appreciation of the currency brought inflation to standstill.

The MSCI Emerging Markets Index slipped 0.9 percent, reversing earlier gains of as much as 0.4 percent. Brazil’s Bovespa sank more than 2 percent while benchmark gauges in Poland, Russia, Argentina, Mexico and South Africa lost more than 1 percent.

To contact the reporters on this story: Inyoung Hwang in New York at ihwang7@bloomberg.net; Michael P. Regan in New York at mregan12@bloomberg.net

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


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