BLBG: European Stocks Slide With Russian Markets as Bonds Rise
European stocks and U.S. equity index futures dropped while the yen rallied with Treasuries as sanctions intended to curb violence in Ukraine sent Russian markets plunging.
The Stoxx Europe 600 Index fell 0.7 percent at 8:52 a.m. in New York as Russia’s benchmark stock index dropped to the lowest since May and the ruble weakened the most in four months. Standard & Poor’s 500 Index futures lost 0.4 percent. The yen rose versus all but one of its 16 major peers, while the 10-year Treasury yield slipped below 2.50 percent on safety demand. The Shanghai Composite Index slid 0.6 percent amid a potential onshore-bond default.
The U.S. and European Union imposed sanctions on Russian banks, energy companies and defense firms in the latest attempt to pressure the country to end support for Ukrainian rebels. President Vladimir Putin shrugged off the most punitive U.S. sanctions so far. Data showed U.S. housing starts unexpectedly fell, while a weekly reading of jobless claims slipped. A total of 24 companies on the S&P 500 report earnings today, including Google Inc. and Schlumberger Ltd.
“It’s a straightforward case of risk sentiment being slightly wobbly,” said Henrik Gullberg, a currency strategist at Deutsche Bank AG in London. “If Russia’s response is to get tougher as well, on Ukraine, then risk deterioration could last a little longer.”
Sanctions Bite
The ruble slumped 1.7 percent to 34.9880 per dollar after falling as much as 1.8 percent, the biggest intraday drop since Russia intervened in Crimea. The Micex (INDEXCF) Index fell 2.8 percent after touching 1,429.08, the lowest level since May 29.
Putin, in Brazil, said this “aggressive” response to the four-month uprising by pro-Russian insurgents in eastern Ukraine will only have a “boomerang effect” that will hurt the U.S.’s own interests.
The U.S. and EU said more sanctions may follow. The Obama administration’s targets include OAO Rosneft, Russia’s largest oil company and natural-gas producer OAO Novatek. The leaders of the 28-nation bloc agreed agreed to blacklist companies and halt lending to public-sector projects in Russia.
Rosneft tumbled 4.4 percent and Novatek slid 8.9 percent, the most since March 3. U.K. natural gas for next-month delivery rose to a two-week high.
The Stoxx 600 dropped after jumping 1.3 percent yesterday, its biggest gain since April 22. Telecommunication companies declined the most among 19 industry groups in the gauge.
Yen, Bonds
The yen strengthened 0.2 percent to 101.48 per dollar while the yield on 10-year Japanese government bonds fell one basis point, or 0.01 percentage point, to 0.53 percent, closing at the lowest rate in more than a year. The euro was little changed at $1.3528 and fell 0.2 percent at 137.28 yen, after touching 137.18, the weakest since Feb. 6.
Ten-year Treasury yields slipped three basis points to 2.49 percent. The rate on similar-maturity German bunds declined three basis points, to 1.17 percent. Dutch yields fell to a record-low 1.37 percent.
Gold for immediate delivery rose as much as 0.7 percent to $1,308.31 an ounce. The metal fell to $1,292.26 on July 15, the lowest level since June 19, as investors assessed prospects for higher U.S. interest rates.
Crude oil rose 1.2 percent in New York to $102.80 a barrel, reaching a four-day high after U.S. crude stockpiles fell as refiners in the world’s biggest oil consumer boosted processing to the highest level since 2005.
China Debt
China’s interest-rate swaps jumped the most in a year and at least four companies scrapped debt sales amid concern the nation faces what would be its second onshore bond default after a builder said it may miss a payment.
Hong Kong’s Hang Seng Index was little changed. Mainland equity gauges fell, with all groups on the Shanghai Composite Index retreating. Huatong Road & Bridge Group Co. warned it may miss a payment on 400 million yuan ($64 million) of one-year bonds as its chairman assists authorities with an investigation.
The MSCI Emerging Markets Index fell 0.4 percent, declining for the first time in four days.
In Europe, Novartis AG, the world’s largest drugmaker by sales, lost 1.7 percent, and Sandvik AB (SAND), a Swedish maker of metal-cutting tools, declined 3.6 percent after both reported quarterly profit that trailed analysts’ projections.
SAP SE rose 3.6 percent after the largest maker of business-management software reported revenue that beat analyst estimates. ITV Plc rallied 5.5 percent after Liberty Global Plc bought a minority stake in the U.K. commercial broadcaster.
Banco Espirito Santo SA slid 10 percent after jumping 20 percent yesterday from the lowest level since at least 1993.
Data Watch
S&P 500 futures dropped today after the index climbed 0.4 percent in New York to 1,981.57, near the all-time closing high of 1,985.44 reached July 3.
Beginning home construction unexpectedly declined in June to a nine-month low as a record plunge in the South swamped gains in the rest of the U.S. Separate data showed the number of Americans filing applications for unemployment benefits unexpectedly dropped last week, showing further healing in the labor market.
Another report may show the Federal Reserve Bank of Philadelphia’s business index fell to 16 in July from 17.8 last month. Readings greater than zero signal growth in the area covering eastern Pennsylvania, southern New Jersey and Delaware.
Earnings Season
Profit by S&P 500 members increased 4.5 percent in the second quarter, and revenue rose 3.1 percent, according to analysts’ estimates compiled by Bloomberg.
SanDisk Corp. dropped 7.6 percent after posting profit margins and sales forecasts that fell short of some analysts’ estimates. Morgan Stanley and UnitedHealth Group Inc. rose after reporting earnings that beat projections. Microsoft Corp. gained 1.7 percent after saying it will eliminate as many as 18,000 jobs, the largest round of cuts in its history.
U.S. equities’ record-breaking gains are sowing anxiety among financial professionals, with a Bloomberg poll showing three in five believe the market is heading for a bubble or already in one.
Forty-seven percent of respondents to the Bloomberg Global Poll said the equity market is close to unsustainable levels while 14 percent already saw a bubble, the quarterly survey of of 562 investors, analysts and traders who are Bloomberg subscribers. Almost a third of respondents called the market for lower-rated corporate debt overheated and most said stock swings will increase within six months, the July 15-16 poll showed.
Federal Reserve Chair Janet Yellen said yesterday asset valuations aren’t out of line with historical norms, after the central bank said a day earlier that prices for some stocks were stretched.
To contact the reporters on this story: Nick Gentle in Hong Kong at ngentle2@bloomberg.net; Paul Dobson in London at pdobson2@bloomberg.net
To contact the editors responsible for this story: Stuart Wallace at swallace6@bloomberg.net Jeremy Herron, Paul Dobson
