SF: Oil Slump on Earnings, Economy; Government Bonds Rally
Aug. 18 (Bloomberg) -- Stocks dropped as a slide in oil prices dragged energy producers lower and results disappointed investors at Target Corp. and Deere & Co., while a rally in government bonds drove the 30-year German yield below 3 percent for the first time on speculation economic growth is slowing.
The Standard & Poor's 500 Index slipped 0.2 percent to 1,090.41 at 10:10 a.m. in New York after rallying 1.2 percent yesterday. The yield on the 30-year bund slid to as low as 2.96 percent, and the 10-year U.S. Treasury yield dropped below 2.6 percent, near the lowest in 17 months. The yen and Swiss franc strengthened against most major counterparts as investors sought safe havens. Oil fell to a one-month low on an industry report that U.S. inventories climbed.
"There is still concern on the strength of the recovery," said Orlando Green, assistant director of capital-markets strategy at Credit Agricole Corporate & Investment Bank in London.
Bonds rose amid a Federal Reserve program to buy Treasuries in an effort to hold borrowing costs down and safeguard the economic recovery. The Fed plans to purchase securities due from August 2016 to August 2020 tomorrow after purchasing $2.6 billion of debt yesterday. The central bank may have to buy more assets if inflation keeps slowing, James Bullard, president of the Fed Bank of St. Louis, told the Wall Street Journal yesterday.
Target slumped 1.1 percent after sales trailed analysts' estimates, while Deere & Co. lost 1.4 percent. All 10 industry groups in the S&P 500 declined. Earnings have topped estimates at about three-quarters of the 447 companies in the benchmark index that reported second-quarter earnings since July 12, according to data compiled by Bloomberg.
$40 Billion Bid
Potash Corp. of Saskatchewan Inc. rose 2.4 percent, building on yesterday's 28 percent rally. BHP Billiton Ltd. made a hostile $40 billion takeover offer for Potash Corp. after the fertilizer maker yesterday rejected its $130-a-share bid as too low. Analysts at Macquarie Group Ltd. said the offer may climb to as high as $165 a share.
European stocks fell for the first time in five days, with more than two stocks declining for every two that rose in the Stoxx Europe 600 Index. Vestas Wind Systems A/S tumbled 21 percent after the world's biggest wind-turbine maker lowered its sales forecast.
German government bond yields fell as the nation sold 5 billion euros ($6.4 billion) of 10-year debt, indicating this year's rally in the securities hasn't damped demand. An index of global sovereign bonds has returned 5.7 percent in 2010, according to Bank of America Merrill Lynch.
'Twice Hurt'
The MSCI World Index of shares handed investors a 2.4 percent loss after accounting for reinvested dividends. An emerging "bubble" in sovereign debt is yet to peak because individual investors no longer trust equities, according to Julius Baer Group Ltd.
"The baby-boomer generation, after being hurt twice with equities, and having a shorter investment time horizon, are simply buying bonds like there's no tomorrow, and yields may stay low for the next two to three years," Christian Gattiker, head of research at Bank Julius Baer in Zurich, said on "Start Up" with Maryam Nemazee on Bloomberg Television today.
The yen and Swiss franc gained the most against the Australian dollar and Norwegian krone, rising at least 0.8 percent against both. The Dollar Index, which gauges the currency against six major trading partners, was little changed at 82.214 after slumping for two straight days.
Oil declined 2.3 percent to $74.06 a barrel in New York after the American Petroleum Institute reported yesterday that the country's crude stockpile increased by 5.87 million barrels last week. The U.S. Energy Department will issue its own data later today.
Copper for delivery in three months fell 0.8 percent to $7,325 a metric ton on the London Metal Exchange, declining for the first time in three days. Aluminum, nickel, tin and zinc also dropped. Gold for immediate delivery lost 0.5 percent to $1,218.82 an ounce.
--With assistance from Paul Armstrong, Matthew Brown, David Merritt, Daniel Tilles and Stuart Wallace in London. Editors: Michael P. Regan, Stephanie Borise.
