BLBG:European Stocks Fall With Commodities on Fed as Dollar Advances
European stocks snapped an eight-day advance, commodities fell and the dollar strengthened amid speculation the Federal Reserve’s decision to tie interest rates to unemployment will bring forward increases in borrowing costs.
The Stoxx Europe 600 Index slid 0.2 percent at 6:21 a.m. New York time and Standard & Poor’s 500 Index futures slipped 0.1 percent. Copper declined 0.9 percent, while silver tumbled 3.1 percent. The Dollar Index rose for the first time in four days as the yen pared a decline that took it to a more than eight-month low. The MSCI Asia Pacific (MXAP) Index climbed 0.3 percent, extending the longest-winning streak in more than three years, and China’s yuan appreciated the most since March.
The Fed said yesterday it would buy $45 billion of Treasuries per month starting in January. Interest rates will stay low “at least as long” as unemployment remains above 6.5 percent and if inflation is projected to be no more than 2.5 percent, it said. U.S. reports today will show retail sales climbed and the number of Americans applying for jobless benefits fell, according to Bloomberg surveys of analysts.
“The unemployment rate is declining just about 1 percent a year for the past two years, and could be not far off 6.5 percent in 12 months,” Fred Goodwin, a strategist at State Street Corp. in London, wrote in a research note. “The Fed is horrific at forecasting. They have completely underestimated how fast the unemployment rate would fall from the beginning of this cycle. Why are they suddenly going to get this right?”
Renault Rally
The Stoxx 600’s decline ended the longest run of gains in 19 months. Volvo AB (VOLVB), the world’s second-largest truckmaker, slid 3.4 percent as Renault SA sold its 6.5 percent stake for 12.8 billion kronor ($1.91 billion) to boost funding. Renault, France’s second-biggest automaker, climbed 2.6 percent.
Renault bonds led a rally in European credit markets. Its 4.25 percent bonds due 2017 rose to a record, pushing the yield premium versus German debt to an all-time low and credit-default swaps to the lowest since March. That helped push benchmark corporate credit indexes lower, with the Markit iTraxx Crossover index of credit-default swaps on 50 mostly junk-rated companies falling three basis points to 459.
Centamin Plc (CEY), a gold producer in Egypt, plunged as much as 64 percent in London trading after halting production as a diesel dispute cut supplies to “critical levels.” Centamin said that it was sent an “illegal retrospective claim” by Egyptian General Petroleum Corp. for $65 million for diesel and won’t receive fuel for its Sukari mine until the amount is paid.
The Egyptian pound dropped as much as 0.3 percent to 6.1784 per dollar, the weakest level since Dec. 2004.
Silver Slides
Copper fell to $8,058 a metric ton and silver for immediate delivery slipped to $32.745 an ounce. Palm oil futures traded in Kuala Lumpur dropped as much as 1.1 percent to 2,217 ringgit a ton, the lowest price since November 2009.
Brent oil for January settlement on the London-based ICE Futures Europe exchange fell 0.2 percent to $109.31 a barrel.
European Union carbon permits declined before a meeting of government officials in Brussels today to discuss measures to cut a surplus of emission allowances. Permits for this month lost 1.3 percent to 6.66 euros a metric ton.
The euro weakened 0.2 percent to $1.3047 after European Union finance ministers agreed to put the central bank in charge of all euro-area lenders in a deal that will pave the way for a firewall fund to provide direct bailouts.
Greek Aid
Euro-area finance ministers approved the release of the next aid payment to Greece today, Luxembourg Prime Minister Jean-Claude Juncker told reporters in Brussels. He said money should start flowing as soon as next week.
The decline in S&P 500 futures indicated the U.S. gauge will slip from a seven-week high. While the Fed’s announcement sparked a rally in U.S. stocks yesterday, gains were erased after Fed Chairman Ben S. Bernanke said that monetary stimulus can’t fully offset the effect of the so-called fiscal cliff, a term used to describe the automatic tax increases and budget cuts set to go into effect next year.
U.S. House Speaker John Boehner said yesterday that President Barack Obama’s plan can’t pass the House or Senate and “we’ve got some serious differences” on the fiscal cliff.
The yield on 30-year U.S. Treasury bonds was little changed at 2.88 percent.
The MSCI Emerging Markets Index added 0.2 percent, gaining for a seventh day in its longest winning streak since Sept. 14 and heading for the highest close since April 3.
China’s yuan strengthened 0.3 percent to 6.2329 versus the dollar. The yen weakened against 12 of its 16 major peers, sliding most against South Korea’s won. The Bank of Japan (8301) is due to hold a policy meeting on Dec. 19-20.
To contact the reporter on this story: Paul Dobson in London at pdobson2@bloomberg.net
To contact the editor responsible for this story: Justin Carrigan at jcarrigan@bloomberg.net
