SF: Dollar Climbs as European Stocks Fall Before U.S. Budget Talks
Dec. 28 (Bloomberg) -- The dollar strengthened the most in a week and European stocks retreated as U.S. lawmakers prepared to debate tax increases and spending cuts that take effect next month. Treasuries extended a weekly advance.
The Dollar Index rose 0.3 percent at 7:18 a.m. in New York. The Stoxx Europe 600 Index slid 0.3 percent and Standard & Poor’s 500 Index futures lost 0.4 percent. Benchmark U.S. 10- year yields fell four basis points to 1.7 percent and the cost of insuring against a corporate default in Europe increased to a three-week high. Italian 10-year bonds pared losses as demand increased at an auction of government debt. Coffee sank 0.7 percent, extending its biggest annual drop since 2000.
U.S. congressional leaders plan to meet with President Barack Obama today and House Republicans said they will convene Dec. 30 as lawmakers seek to avoid more than $600 billion in spending cuts and tax gains that will start in January. A report may show pending sales of American homes rose for a third month. Japan’s industrial output declined more than economists expected in November, bolstering the case for Prime Minister Shinzo Abe to push for further monetary easing.
“Time is running out for the long-awaited solution in fiscal-cliff negotiations,” said Kai Fachinger, who manages about $700 million at SAM Sustainable Asset Management AG in Zurich. “As the positions of the two parties are just too far off, it’s likely to happen at the very last second. In a worst- case scenario, the negotiations will continue into early 2013 and stock markets will open very volatile into the new year.”
European Shares
The Stoxx 600’s decline trimmed its 2012 advance to 15 percent, the largest annual increase since 2009. The number of shares changing hands today was 26 percent less than the 30-day average, according to data compiled by Bloomberg.
Bankia SA plunged 25 percent to the lowest price since its initial share sale in July 2011 as bank was temporarily excluded from Spain’s benchmark IBEX 35. Porsche SE surged 6 percent to the highest in almost two years after an appeals court ruling dismissed a lawsuit by hedge funds that accused the German carmaker of concealing a plan to corner the market in Volkswagen AG shares.
S&P 500 futures erased an earlier gain of as much as 0.4 percent. Obama will meet at 3 p.m. Washington time with Republican House Speaker John Boehner and Senate Minority Leader Mitch McConnell, along with Senate Majority Leader Harry Reid and House Minority Leader Nancy Pelosi, both Democrats. The president who had been negotiating one-on-one with Boehner.
Benchmark U.S. 10-year Treasuries are heading for the first weekly gain in a month. The securities lagged behind stocks this year by the most since 2009, with equities returning eight times more than bonds.
Home Sales
A report at 10 a.m. New York time may show Americans signed more contracts in November to purchase previously owned homes. The index of pending home resales climbed 1 percent after a 5.2 percent gain in October, according to the median estimate in a Bloomberg survey of 35 economists.
The MSCI Asia Pacific Index advanced 0.6 percent. Government reports today showed Japan’s industrial output slid 1.7 percent last month from October, worse than all 27 estimates in a Bloomberg News survey that had a median forecast of a 0.5 percent decline. Consumer prices excluding fresh food fell 0.1 percent in November from a year earlier.
Abe’s cabinet is working on a plan to fight against a strong yen, the Nikkei newspaper said. Proposals include the use of currency intervention when needed, the paper said.
Corporate Default
The cost of insuring against a corporate default increased in Europe. The Markit iTraxx Crossover Index of credit-default swaps on 50 mostly junk-rated companies rose 12 basis points to 480, paring its first annual rally since 2009.
The yield on Italian 10-year bonds was little changed at 4.52 percent as the country sold 5.9 billion euros ($7.8 billion) of five- and 10-year government securities. Investors bid for 1.47 times the amount of the 10-year debt offered, up from 1.18 times on Nov. 29. The yield had earlier increased as much as 4 basis points.
Arabica coffee dropped to $1.468 a pound, heading for a 35 percent decline for this year. That’s the biggest decline of the S&P GSCI gauge of 24 commodities, which is up 0.2 percent this year. Wheat advanced 0.6 percent. German power prices for 2014 fell 0.3 percent to a record 45.45 euros a megawatt-hour, according to broker prices compiled by Bloomberg.
The MSCI Emerging Markets Index advanced 0.5 percent to extend this year’s increase to 15 percent. China’s Shanghai Composite Index rallied 1.2 percent to the highest since June 21. The BSE India Sensitive Index added 0.6 percent, heading for its best year since 2009. Vietnam’s VN Index jumped to the highest since August, capping its largest weekly gain since February. Russia’s Micex Index fell 0.2 percent.
--With assistance from Paul Armstrong, Claudia Carpenter and Anchalee Worrachate in London and Corinne Gretler in Zurich. Editors: Andrew Rummer, Justin Carrigan
To contact the reporter on this story: Andrew Rummer in London at arummer@bloomberg.net
To contact the editor responsible for this story: Chris Nagi at chrisnagi@bloomberg.net
