BLBG: U.S., European Stocks, Commodities Decline as Greek Bonds Slump
By Michael P. Regan and Gavin Serkin
April 7 (Bloomberg) -- U.S. and European stocks fell, led by commodity producers as oil and copper dropped, while the premium investors demand to hold Greek bonds widened to the most since 1998 on speculation the nation may default.
The Standard & Poor’s 500 Index fell 0.1 percent at 9:54 a.m. in New York, retreating from the highest level since September 2008. The MSCI World Index of 23 developed nations’ stocks slipped 0.1 percent. Oil dropped from an 18-month high on concern inventories climbed for a 10th week. Greece’s 10-year bond yields rose 0.16 percentage point to 7.14 percent and the yield premium to German debt widened to 4.03 percentage points, the most since before the euro was introduced in 1999.
Greece is more likely to default than all the European Union’s members in eastern Europe, including three that needed International Monetary Fund-led bailouts, credit default swaps show. Investors may demand a yield of as much as 7.25 percent to buy Greek 10-year dollar-denominated bonds, according to Paris- based Axa Investment Managers, which oversees about $669 billion.
“A default may be ultimately unavoidable,” said Stephen Jen, managing director at BlueGold Capital Management LLP. “It’s an increasingly difficult proposition for the creditors to expect full repayment.”
Emerging Markets
Emerging-market stocks bucked the trend, rising for a ninth day for their longest rally since October. The Taiwan dollar led gains in higher-yielding currencies, rising 0.3 percent against the U.S. dollar, after the Federal Reserve indicated yesterday that U.S. interest rates will stay near record lows. Yuan forwards advanced on speculation China will let its currency appreciate.
Fed minutes showed the U.S. is likely to keep rates on hold, nurturing the recovery in the world’s biggest economy, at the same time as Treasury Secretary Timothy F. Geithner prods China to revalue the yuan. Policy makers are considering allowing the yuan to trade against the ruble, the South Korean won and the Malaysian ringgit, according to an official at the China Foreign Exchange Trade System, as the nation diversifies its foreign reserves from the dollar.
Among emerging markets, Pakistan’s Karachi 100 Index climbed 1 percent while Indonesia’s Jakarta Composite Index and the Stock Exchange of Thailand Index added 0.6 percent.
The euro weakened 0.3 percent against the dollar, trading near its lowest level in almost two weeks, after a report showed the economy of the 16 nations sharing the currency failed to grow in the fourth quarter.
Dollar Bonds
Greece’s government plans to start marketing dollar- denominated bonds to U.S. investors this month. The two-year spread to bunds widened by 7 basis points to 5.39 percentage points. Bonds sold by Germany, the region’s biggest economy, are used by investors as a benchmark.
Credit-default swaps on five-year debt from Latvia, whose BB foreign-currency rating at Standard and Poor’s is four levels below investment-grade Greek debt, dropped below Greek default swaps yesterday. Greece is now more likely to default than all the EU’s eastern members, two of which are junk rated, CDS markets indicate.
Latvia, Hungary and Romania needed IMF-led bailouts at the height of the global crisis to avert defaults. A technical team from the IMF is in Athens today, though the Greek government maintains there is no need for an international loan. Greek bonds declined yesterday on concern an EU-led rescue package may falter.
European Stocks
The Stoxx Europe 600 Index slipped 0.1 percent as basic resources companies dropped. Declines were limited as Allied Irish Banks Plc surged 15 percent in Dublin after Royal Bank of Scotland Group Plc recommended buying the shares.
The MSCI Asia Pacific Index rallied 0.8 percent for a fifth day of gains, its longest winning streak since July, as the Bank of Japan said the recovery in the world’s second-largest economy is intact and Malaysia’s Prime Minister Najib Razak said growth may exceed forecasts this year. Mitsubishi UFJ Financial Group Inc. gained 2.7 percent in Tokyo.
Nickel for delivery in three months fell 0.2 percent to $24,800 a metric ton on the London Metal Exchange. Aluminum and copper also dropped. Crude oil retreated 0.3 percent to $86.60 a barrel in New York trading.
To contact the reporter for this story: Michael P. Regan in New York at mregan12@bloomberg.net; Gavin Serkin at gserkin@bloomberg.net
