Bloomberg News

Stocks Drop While Treasuries Climb on Ukraine; Oil Gains

July 21, 2014

Global stocks fell as Russian equities slid for a sixth day on concern tensions over Ukraine could lead to deeper sanctions. Treasuries advanced with gold and oil, while corn retreated.

The Standard & Poor’s 500 Index dropped 0.2 percent at 4 p.m. in New York, trimming an earlier loss of 0.6 percent. The Stoxx Europe 600 Index slipped 0.5 percent as Russian stocks capped their longest slump since January. The yield on 10-year Treasuries fell 1 basis point to 2.47 percent. Crude jumped 1.4 percent and gold added 0.3 percent. Corn dropped to the lowest level in four years.

About $47 billion was erased from the market value of Russia’s benchmark equity gauge last week, the most in four months, as world leaders pressure President Vladimir Putin to do more to end the violence that led to the deaths of 298 people on Malaysian Airlines flight MH17. Equities pared losses after President Barack Obama said he prefers a diplomatic solution to the hostilities and Malaysia’s prime minister said rebels in eastern Ukraine agreed to hand over bodies of crash victims and grant access to the crash site.

“The geopolitical situation is an overarching damper on the market and underneath that this week we’re right in the heart of second-quarter earnings,” Matthew Kaufler, manager of Federated Investor Inc.’s Clover Value Fund, said in an interview. “While the market is net focused on earnings, we’re still trying to keep a pulse on what’s going on around the world.”

International Anger

Obama and his advisers have concluded that evidence and world opinion are giving the U.S. greater leverage on Putin over Russia’s support for separatists in Ukraine. The administration is pushing European governments to expand sanctions against Russia, even at some peril to their own economies, in an effort to break Putin’s support for the pro-Russian rebels.

Putin has defied rising international anger over the downing of the airliner, suggesting leaders in the U.S. and Europe were using the incident for “selfish political gains.” He said international investigators, whose probe of the crash site has been hampered by armed, pro-Russian separatists, should have full access to the wreckage.

Malaysian Prime Minister Najib Razak said rebels agreed to hand over bodies of crash victims and grant access to the crash site. The plane’s flight data recorders will be handed over to a Malaysian team in Donetsk tonight, he said.

“The inflection point today was after President Obama’s speech on Ukraine, where he basically didn’t say anything that people could construe as escalating the crisis,” Joe Saluzzi, partner and co-head of equity trading at Chatham, New Jersey-based Themis Trading LLC, said via phone. “People were afraid going into the speech which is why we were selling off.”

Russian Markets

Russia’s Micex Index (INDEXCF) of stocks slid 2.7 percent to a two-month low. The nation’s February 2027 ruble bonds declined, lifting the yield 19 basis points to 9.23 percent, the highest since May. The ruble was little changed against the dollar.

The cost of insuring against losses on Russian sovereign debt rose to the highest since May, with credit-default swaps climbing 15 basis points to 223 basis points, according CMA. That compares with 166.5 basis points on July 9.

U.S. exchange-traded funds that invest in Russia led net outflows of capital from emerging markets last week. Russia-focused ETFs lost $28.54 million in the five days through July 18, according to data compiled by Bloomberg.

Earnings, Deals

The S&P 500 (SPX) rallied 1 percent on July 18, rebounding from its biggest loss since April 10 that came after the downing of the passenger jet in Ukraine and the Israeli ground invasion of the Gaza Strip. The S&P 500 ended last week up 0.5 percent as improved results from Google Inc. to Intel Corp. and a $75 billion buyout offer for Time Warner Inc. helped equities overcome the biggest volatility increase since 2013.

The benchmark gauge closed at a record 1,985.44 on July 3 and trades at 18 times reported earnings, near the highest level in four years. The index has not had a drop of more than 10 percent since 2011.

Netflix Inc. and Chipotle Mexican Grill Inc. are among the S&P 500 companies reporting earnings today. About 76 percent of those that have posted results this earnings season have beaten analysts’ estimate for profit, while 69 percent exceeded sales projections, according to data compiled by Bloomberg.

Profits at S&P 500 members probably rose 6.2 percent in the second quarter, while sales gained 3.3 percent, according to analyst estimates compiled by Bloomberg.

Hasbro, Halliburton

Hasbro Inc. fell 2.7 percent after reporting revenue that missed analysts’ estimates. BB&T Corp. slid 4.1 percent as adjusted profit fell short of targets. Yum! Brands Inc. dropped 4.2 percent and McDonald’s Corp. lost 1.5 percent after the two halted buying meat products from a Shanghai supplier under investigation. Allergan Inc. rose 2.3 percent after announcing job cuts and better-than-estimated results.

The Chicago Board Options Exchange Volatility Index jumped 3.6 percent to 12.49. The gauge known as the VIX (VIX) was little changed last week despite a 32 percent jump on July 17, the biggest one-day rally in 15 months.

The Stoxx 600 dropped today after last week’s 0.8 percent gain. Travel and leisure stocks were some of the biggest losers among 19 industry groups in the gauge today, while the volume of shares listed on the Stoxx 600 changing hands was 27 percent lower than the 30-day average, data compiled by Bloomberg show.

European Stocks

Air France-KLM Group (AF), Europe’s biggest airline, declined 3.7 percent as tour operator TUI AG fell 3.5 percent and hotelier Accor SA retreated 1.9 percent. Commerzbank AG dropped 1.9 percent after a report that Germany’s financial-markets regulator found high operational risks at the country’s second-biggest lender.

Sky Deutschland AG (SKYD) rallied 4.5 percent after people familiar with the matter said Rupert Murdoch’s 21st Century Fox Inc. may sell its 57 percent stake in the broadcaster to British Sky Broadcasting Group Plc in the next two weeks. BSkyB fell 1.5 percent.

The yield on Spanish five-year securities dropped four basis points to 1.14 percent, after touching the lowest since Bloomberg started tracking the data in 1993. Both Spain’s and Italy’s five-year securities rose for the seventh-successive day.

The dollar was little changed at $1.3523 per euro and 101.39 yen.

The Bloomberg Commodity Index climbed 0.4 percent after falling as much as 0.4 percent. West Texas Intermediate crude oil rose 1.4 percent to $104.59 a barrel as strong refinery demand reduced U.S. inventories.

Mild Weather

U.S. natural gas futures dropped 2.6 percent to the lowest in seven months as meteorologists predicted mild weather, which would curtail demand from power plants and help narrow a stockpile deficit.

Corn slipped 1.7 percent to the lowest since July 2010 on speculation over growing supplies. A lack of heat in the U.S. Midwest in the next two weeks will aid soybean growth and late corn pollination, Commodity Weather Group wrote in a report today. The European Union’s crop-monitoring unit raised its outlook for corn yields today, citing July rains that helped summer-crop conditions.

Gold futures rose 0.3 percent, gaining for the third time in four sessions as tension over Ukraine boosted demand for haven assets.

Global Shares

The MSCI All-Country World Index slipped 0.2 percent following last week’s 0.5 percent increase. The MSCI AC Asia Pacific Index (MXAP) gained 0.1 percent after rising 0.5 percent last week.

Stocks in Dubai (DFMGI) rose 2.5 percent, after the DFM General Index tumbled 6 percent yesterday in the biggest fall since June 24.

Indonesia’s rupiah strengthened 0.5 percent versus the dollar, while the Jakarta Composite Index added 0.7 percent on speculation Joko Widodo will be confirmed as Indonesia’s next president. The election commission is set to release the results by tomorrow.

India’s S&P BSE Sensex advanced for a fifth day, rising 0.3 percent. Thailand’s baht climbed to a seven-month high. Exports rose 7.2 percent last month from a year earlier, Junta leader Prayuth Chan-Ocha said in a July 18 television address.

The Shanghai Composite Index dropped 0.2 percent and the Hang Seng China Enterprises Index of mainland shares listed in Hong Kong lost 0.8 percent.

To contact the reporters on this story: Oliver Renick in New York at orenick2@bloomberg.net; Andrew Reierson in London at areierson1@bloomberg.net

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


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