BLBG: Global Stock Rout Halts Rally as Dollar Gains
A gauge of global shares dropped for a fourth day as the five-month rally in equities ended. Credit risk rose, while Treasuries fell and the dollar strengthened before a U.S. jobs report. Oil and copper declined.
The MSCI All-Country World Index lost 0.5 percent at 7:46 a.m. in New York, heading for its worst week since March. Standard & Poor’s 500 Index futures dropped 0.5 percent, and the Stoxx Europe 600 Index slid 1.2 percent. Corporate credit risk in Europe climbed for a fourth day. Treasury 10-year yields rose one basis points to 2.57 percent, while the Bloomberg Dollar Spot Index advanced to a four-month high. Oil fell 0.7 percent, and copper declined 0.7 percent.
Investors are looking to today’s U.S. payrolls report as they speculate over the timeline for Federal Reserve interest-rate increases after faster-than-estimated economic and wage growth. The International Swaps & Derivatives Association will meet at 11 a.m. New York time to determine whether credit-default swaps linked to Argentina have been triggered by a failure-to-pay credit event. A final reading of European factory output for July came in lower than economists had anticipated, while Chinese manufacturing expanded.
“As U.S. figures are so good recently, the possibility for an early interest rate rise is getting higher,” said Richard Fu, director of Asian commodity trading at Newedge Group SA in London. “The figures from the U.S. and China are good but the U.S. stock market has risen so much for so long and profit-taking pressure is mounting.”
Index Futures
The MSCI world gauge declined for a fourth day, pushing its weekly loss to 2.4 percent. It slid 1.3 percent in July for its first monthly drop since January.
Futures on the S&P 500 expiring in September fell today, reversing a gain after European markets opened. The index slumped 2 percent yesterday, the most since April. It’s dropped 2.4 percent this week and declined 1.5 percent in July after five straight monthly rallies.
The Dow Jones Industrial Average erased its 2014 gain after yesterday’s 1.9 percent drop. Futures on the index fell 0.5 percent today.
“The market is at a point where it’s vulnerable to some sort of correction,” said Chris Green, director of economics and strategy in Auckland at First NZ Capital Ltd. “It’s a reflection of the fact that investors’ risk aversion had been at muted levels and the market had got itself pretty extended.”
The selloff came before the U.S. Labor Department’s employment report, which economists predict will show that companies added 230,000 workers to nonfarm payrolls in July. A measure of wages, the employment cost index, rose 0.7 percent in the second quarter, faster than predicted, data yesterday showed.
Consumer Confidence
A separate report may show the Thomson Reuters/University of Michigan final index of consumer confidence in July fell to 81.8 from 82.5 in June. A third release may show the Institute for Supply Management’s manufacturing index increased in July.
Chevron Corp. and Clorox Co. are among S&P 500 companies reporting earnings today. About 76 percent of those that have posted results this season have beaten analysts’ estimates for profit, while 65 percent exceeded sales projections, according to data compiled by Bloomberg.
LinkedIn Corp. climbed 5.7 percent in early New York trading after the professional-networking website gave a third-quarter sales forecast that topped estimates. Procter & Gamble Co. advanced 1.8 percent after posting quarterly profit that beat projections.
Bally Technologies Inc. jumped 36 percent after Scientific Games Corp. agreed to buy it.
European Shares
The Stoxx 600 slid today after a 1.3 percent drop yesterday, the biggest since July 8. The gauge has lost 3.1 percent this week and declined 1.7 percent in July, completing its first back-to-back monthly drops since May 2012.
All 19 industry groups in the Stoxx 600 fell today.
ArcelorMittal lost 6.9 percent after the steelmaker lowered its full-year profit forecast. Vinci SA dropped 8.2 percent after Europe’s biggest builder projected a decline in annual revenue. L’Oreal SA fell 2.3 percent after the world’s largest cosmetics company reported second-quarter sales that missed analysts’ estimates.
Iliad SA sank 7.2 percent after the French mobile-phone carrier offered $15 billion for a controlling stake in T-Mobile US Inc.
The volume of Stoxx 600 shares changing hands today was 19 percent greater than the 30-day average, according to data compiled by Bloomberg.
Today’s decline in Treasuries extended the world’s biggest losses in government bond markets over the past two months. U.S. securities are declining on speculation the Fed is moving closer to closer to raising interest rates as the economy strengthens.
Raising Target
Traders see about 79 percent odds the central bank will raise the target for its benchmark to at least 0.5 percent by September 2015, based on futures contracts. The figure was less than 70 percent on July 1.
Spain’s 10-year yield rose six basis points to 2.56 percent and Italy’s increased eight basis points to 2.78 percent.
The cost of insuring against losses on corporate debt rose to the highest since May, with the Markit iTraxx Europe index of credit-default swaps on 125 investment-grade companies adding three basis points to 68 basis points. The gauge climbed almost seven basis points this week, the biggest weekly increase since January.
The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major counterparts, rose as much as 0.1 percent to 1,023.31, its highest level since March 20.
West Texas Intermediate oil fell as much as 1.1 percent to $97.09 a barrel. Copper dropped 0.7 percent to $7,062.50 a metric ton.
Emerging Nations
The MSCI Emerging Markets Index lost 0.9 percent, extending losses this week to 2.1 percent. A gauge that tracks the performance of 20 developing-nation currencies against the greenback fell to the weakest level since March as the rupee and the won slid.
China’s official manufacturing purchasing managers’ index climbed to 51.7 for July, up from 51 in June and exceeding the 51.4 median estimate of economists surveyed by Bloomberg. The final reading on the HSBC Holdings Plc/Markit Economics China factory PMI was 51.7, missing estimates for it to match the preliminary reading of 52, an 18-month high.
Russian stocks declined as OAO Sberbank and OAO VTB Bank fell after the European Union tightened sanctions against the nation’s biggest lenders. The benchmark Micex Index dropped 0.8 percent, heading for a third weekly loss. The gauge slid 6.6 percent in July, the worst monthly performance since May 2012.
Argentina Debt
Argentina’s dollar bonds sank for a second day. The nation’s Economy Minister Axel Kicillof said the government wouldn’t oppose a third-party solution to its dispute with a group of hedge funds who successfully sued the country for $1.5 billion. A U.S. judge has blocked the country from paying its debt -- including an interest payment due July 30 on $13 billion of bonds -- until the hedge funds led by Elliott Management Corp. get their money. Moody’s Investors Service placed the country’s rating on negative outlook.
Argentina’s bond prices tumbled yesterday along with the country’s benchmark stock index after Standard & Poor’s said the blown deadline was enough to constitute default on about $13 billion of debt. President Cristina Fernandez de Kirchner said a blocked debt payment doesn’t constitute a default.
“These are interesting times for markets,” Keith Bowman, an equity analyst at Hargeaves Lansdown Plc in London, said in a phone interview. “Some investors are concerned for a potential interest rate hike, maybe a little bit nearer-term than some people were hoping for. Geopolitical concerns are certainly there in the background.”
To contact the reporters on this story: Nick Gentle in Hong Kong at ngentle2@bloomberg.net; Cecile Vannucci in London at cvannucci1@bloomberg.net
To contact the editors responsible for this story: Nick Gentle at ngentle2@bloomberg.net Claudia Carpenter, James Poole
