Stocks fell around the world, led by banks, while the euro weakened to a record against the Swiss franc as stress tests failed to allay concern the debt crisis will deepen. Gold had its longest winning streak since 1980.
The MSCI All-Country World Index slid 0.5 percent at 7:55 a.m. in New York and the Stoxx Europe 600 Banks Index dropped to a two-year low. Standard & Poor’s 500 Index futures slid 0.6 percent. The euro depreciated as much as 1.4 percent to 1.13737 per franc, and the cost of insuring European sovereign debt rose to a record. Italy’s 10-year bond yield jumped 25 basis points, while the German bund yield lost five basis points. Gold topped $1,600 an ounce for the first time, and silver rose 2.7 percent.
European leaders are holding a special summit this week as they seek to contain the debt crisis, after eight of the region’s banks failed stress tests. European Central Bank President Jean-Claude Trichet reiterated the ECB won’t accept bonds from a defaulting nation as collateral. In the U.S., President Barack Obama is trying to get lawmakers in both parties to agree to a deficit-cutting deal as the Aug. 2 deadline for raising the debt ceiling looms.
“Markets are likely to be dominated by views on the sustainability of sovereign debt,” Carlo Mareels, a credit analyst at RBC Capital Markets in London, wrote in a report. “As long as there is no definitive answer to this, we think there is not much space for a stable recovery in the bank space.”
Intesa, SocGen
Intesa Sanpaolo SpA, Italy’s second-biggest bank, dropped 3.9 percent, Germany’s Commerzbank AG slid 2.4 percent, and France’s Societe Generale SA sank 4.9 percent. Kuehne & Nagel International AG lost 3.6 percent as the 120-year-old shipping company reported earnings that missed analysts’ estimates. The Stoxx Europe 600 Index fell 1.2 percent, extending the biggest weekly decline in four months.
The VStoxx Index (V2X), a measure of the cost of insuring against losses in the Euro Stoxx 50 Index, rose 8.3 percent to 30.44, on course for the highest close in four months.
The retreat in S&P 500 futures indicated the gauge will extend last week’s 2.1 percent slide. Halliburton Co. (HAL), the world’s second-biggest oilfield-services provider, posted second-quarter profit of 80 cents a share, more than the estimate of 73 cents in a Bloomberg survey. The stock was little changed in German trading.
Charles Schwab Corp., the largest independent brokerage by client assets, is also due to release results before the start of trading today. International Business Machines Corp. (IBM) is set to report after the close. More than 100 other S&P 500 companies will post earnings this week, including Goldman Sachs Group Inc., Coca-Cola Co. and Apple Inc.
The yield on the 10-year Treasury note fell two basis points to 2.89 percent.
1980 Recession
Gold rose as much as 0.5 percent to $1,600.80 an ounce and silver gained for a fourth day to $40.3450. The U.S. was in the final month of a recession in July 1980, according to the National Bureau of Economic Research, and inflation was at 13.1 percent, Bloomberg data show. Rising consumer prices have prompted at least two dozen nations and the European Central Bank to raise interest rates this year. The metal touched a then-record $850 in January 1980.
The euro depreciated 0.9 percent against the yen, snapping a three-day gain, while the franc advanced versus 10 of its 16 major peers monitored by Bloomberg, climbing to an all-time high versus the dollar. The Australian currency fell 0.3 percent versus the greenback, dropping for a third day.
Default Risk
The extra yield investors demand to hold Italian 10-year bonds instead of benchmark bunds rose 30 basis points, increasing for the third consecutive day. Spanish 10-year bonds slumped for a third day, sending the yield 25 basis points higher. Yields on Portuguese and Greek two-year notes also rose.
Credit-default swaps on Greece, Ireland, Italy, Portugal and France rose to records, helping drive the Markit iTraxx SovX Western Europe Index of 15 governments 12 basis points higher to 310 basis points.
The Markit iTraxx SovX CEEMEA Index of eastern European, Middle East and Africa credit-default swaps jumped five basis points to 219. The risk of euro-area contagion is rising for eastern Europe, Morgan Stanley said, recommending underweight positions in central and eastern European currencies relative to other emerging markets.
The BUX Index fell 2.8 percent in Budapest and the forint weakened, reaching a record low against the franc. Sixty-three percent of Hungarian household mortgages were denominated in foreign currencies as of April 30, with over 100,000 mortgages overdue, according to central bank data.
Poland’s WIG20 Index slid 1.5 percent. Franc-denominated home loans represent 53 percent of all mortgages outstanding, according to the financial market regulator’s website. The zloty weakened 1.2 percent against the franc.
Wheat slipped 2.3 percent and corn declined 2.5 percent. Brent crude oil for September settlement fell 0.8 percent to $116.34 a barrel on London’s ICE Futures Europe exchange.
To contact the reporter on this story: Stephen Kirkland in London at skirkland@bloomberg.net
To contact the editor responsible for this story: Justin Carrigan at jcarrigan@bloomberg.net
