BS: U.S. Futures Fall as Euro Strengthens on Bond Comments
By Stephen Kirkland and Rita Nazareth
Aug. 19 (Bloomberg) -- Stocks and U.S. index futures resumed declines after paring about half their earlier losses. The euro strengthened amid speculation European Union regulators may push for joint bond sales by nations in the region to help contain the government debt crisis.
The Stoxx Europe 600 Index slipped 1.8 percent after falling 3.6 percent at 8:58 a.m. in New York. Standard & Poor’s 500 Index futures slid 1.3 percent. Oil dropped 1 percent, paring its loss from 3.9 percent. Gold futures topped $1,880 an ounce for the first time. The franc strengthened against 16 major peers. The euro added 0.5 percent to $1.4402.
More than $6 trillion has been erased from global equities this month on signs the U.S. recovery is stumbling, while the cost of insuring European sovereign debt is back to levels that triggered the region’s central bank to buy Italian and Spanish bonds on Aug. 8. The European Commission said it may present draft legislation on euro bonds when completing a report on the feasibility of common debt sales.
“The market is in dire need of confidence,” Burt White, who helps oversee $330 billion as chief investment officer at LPL Financial Corp. in Boston, said in a telephone interview. “The news today that the EU is going to consider a euro bond is important to maintain the confidence of the market. If we can get a little bit of confidence back, we think that stocks look cheap. Cheap isn’t cheap enough when you have a confidence problem.”
Euro, Spanish Bonds
The euro gained against 10 of 16 major counterparts, advancing 0.3 percent versus the yen. The difference in yield between Spain’s 10-year note and the benchmark German bund narrowed five basis points to 2.85 percent.
The report on joint bond sales “will, if appropriate, be accompanied by legislative proposals,” EU Economic and Monetary Affairs Commissioner Olli Rehn said in a written response to a European Parliament question. “These euro securities would aim to strengthen fiscal discipline and increase stability in the euro area through markets.” He gave no timetable for either the report or any related draft law.
Banks declined after Egan-Jones Ratings Co.’s Sean Egan said lenders will struggle to raise enough capital to counter potential losses from the region’s sovereign crisis. The gauge of lenders in the Stoxx 600 fell 2.2 percent. Lloyds Banking Group Plc, Britain’s biggest mortgage lender, declined 5.2 percent, Swedbank AB retreated 2.8 percent and Deutsche Bank AG lost 3.8 percent.
Autonomy, HP
Autonomy Corp. surged 75 percent after the U.K. software company agreed to be bought by Hewlett-Packard Co. for $10.3 billion.
The decline in U.S. futures signaled the S&P 500 will extend yesterday’s 4.5 percent slump. The S&P 500 has tumbled 16 percent from its April high, about the same as the retreat between April 23 and July 2, 2010, previously the biggest contraction of the bull market that began in March 2009.
Citigroup Inc. cut its U.S. gross domestic product growth estimate to 1.6 percent in 2011 from 1.7 percent, and lowered its forecast for 2012 to 2.1 percent from 2.7 percent. JPMorgan Chase & Co. said GDP will grow 1 percent in the fourth quarter rather than the 2.5 percent previously forecast and 0.5 percent in the first quarter of 2012 instead of 1.5 percent.
Two-year Greek yields surpassed 37 percent for the first time in almost a month, and 10-year yields increased 40 basis points to 16.40 percent. The extra yield investors demand for holding 10-year Portuguese debt instead of German bunds rose to 8.44 percentage points, a two-week high.
The franc appreciated 0.6 percent against dollar and rose 0.8 percent versus the euro, heading for the biggest weekly gain against the single currency since the week ended July 1. The yen rose against the dollar and the euro even after Finance Minister Yoshihiko Noda signaled he’s ready to curb its gains. The yen rose 0.2 percent against the dollar and 0.4 percent versus the euro.
--With assistance from Shiyin Chen in Singapore and Claudia Carpenter, Andrew Rummer, Michael Shanahan, Jason Webb and Anchalee Worrachate in London. Editors: Stephen Kirkland, Nick Baker
To contact the reporters on this story: Stephen Kirkland in London at skirkland@bloomberg.net; Rita Nazareth in New York at rnazareth@bloomberg.net
