BLBG:European Stocks Decline as Yen Weakens, Oil Advances
European stocks fell for a second day amid efforts to end a U.S. government shutdown and before the start of the earnings season. Treasuries declined and the yen weakened while oil led commodities higher.
The Stoxx Europe 600 Index slipped 0.4 percent to 307.99 at 7:28 a.m. in New York. S&P 500 futures increased less than 0.1 percent. The MSCI Emerging Markets Index added 0.6 percent as trading resumed in China and India eased liquidity curbs. The yield on 10-year Treasuries rose one basis point to 2.64 percent. Spanish and Italian bonds declined. Japan’s currency slid 0.4 percent to 97.08 per dollar, retreating from an eight-week high. West Texas Intermediate oil climbed 0.6 percent.
Federal Reserve Bank of Dallas President Richard Fisher said yesterday the U.S. “cannot afford to default” and that debt ceiling talks “will come down to the wire.” With the country’s borrowing authority set to lapse Oct. 17, President Barack Obama reiterated that he won’t negotiate with Republicans over raising the debt ceiling or reopening the government. German factory orders unexpectedly declined in August, a government report showed today. Alcoa Inc. is set to release earnings, marking the unofficial start of the U.S. quarterly reporting season.
“Investors are nervous because of the political wrangling in the U.S., though we do believe that there will be a last-minute compromise and nobody wants to be caught short,” said Carsten Hilck, who oversees about $6.8 billion as senior fund manager at Union Investment Privatfonds GmbH in Frankfurt.
Test Vote
Senate Democrats are planning a test vote before the end of this week on a measure that would grant Obama authority to raise the $16.7 trillion debt ceiling, probably for a year unless two-thirds of both chambers of Congress disapprove. China and Japan, which together hold more than $2.4 trillion in Treasuries, raised pressure on the U.S. to resolve the political impasse.
“Markets will start to fear that there won’t be a solution to avoid damage to the economy and therefore greater odds of a debt default will start to be priced in,” said Shane Oliver, the Sydney-based head of investment strategy at AMP Capital Investors Ltd., which has $131 billion under management. “The longer it drags on, the greater the degree of uncertainty.”
More than two shares fell for every one that gained in the Stoxx 600 as trading volumes were 26 percent higher than the 30-day average, data compiled by Bloomberg show.
Cutting Forecast
TGS Nopec Geophysical ASA (TGS) tumbled 13 percent as Norway’s largest surveyor of underwater oil and gas fields cut its revenue forecast. Rival Petroleum Geo-Services ASA slid 4.4 percent. Getinge AB retreated 5.9 percent as the Swedish maker of sterilization systems said third-quarter profit missed analysts’ estimates.
Banca Monte dei Paschi di Siena SpA, Italy’s third-biggest bank, rose 1.6 percent after pledging to cut an additional 3,360 jobs and increase capital to win support from the European Union for 4.1 billion euros ($5.6 billion) in state aid.
The S&P 500 (AA) fell to a four-week low yesterday. Alcoa, the largest American aluminum producer, will unofficially kick off the U.S. earnings season after the close of New York trading today. It advanced 0.1 percent in German trading before reporting results.
The MSCI Emerging Markets Index rose to a two-week high. India’s S&P BSE Sensex increased 0.4 percent after the central bank relaxed liquidity curbs. Central bank Governor Raghuram Rajan scaled back emergency steps taken to boost the currency, cutting the marginal standing facility rate after the rupee rebounded from a record low on Aug. 28.
Holiday Sales
The Shanghai Composite Index (SHCOMP) added 1.1 percent on the first day of trading after a week-long holiday and the Hang Seng China Enterprises Index in Hong Kong increased 1 percent. China’s retail and catering combined sales grew 14 percent during the holiday, according to a statement posted on the website of the Commerce Ministry. The yuan advanced by the most in almost two months as the central bank raised the currency’s reference rate to a record.
The yen weakened against all of its 16 major peers after reaching 96.57 per dollar earlier today, its strongest level since Aug. 12. The Japanese currency dropped most against Taiwan’s dollar and Norway’s krone. It fell 0.3 percent to 131.74 per euro.
Implied volatility on the dollar against the yen traded near a nine-month low, a sign investors are confident in a resolution to U.S. debt-ceiling talks, according to Westpac Banking Corp. One-week implied volatility was at 9.95 percent after touching 9.56 percent yesterday, the lowest since Jan. 8. It’s averaged 13.3 percent this year.
Bonds Drop
Spanish bonds declined for a second day as the Financial Times reported that the European Banking Authority may penalize banks that rely on cash from the European Central Bank’s longer-term refinancing operations for funding. The 10-year yield rose three basis points to 4.24 percent while the rate on similar-maturity Italian debt climbed three basis points to 4.32 percent
Yields on Treasury bills rose as investors sought compensation for the risk of a U.S. default. Rates on $93 billion of Treasury bills due on Oct. 24 climbed to as high as 0.18 percent, the most since they were issued in April, from negative 0.01 percent as recently as Sept. 27.
Japan must consider the impact of any default on its bond holdings, even as the U.S. will probably avoid a fiscal crisis, Japanese Finance Minister Taro Aso said today in Tokyo. Chinese Deputy Finance Minister Zhu Guangyao said yesterday that the U.S. should prevent a default, the People’s Daily reported.
The Treasury is scheduled to sell $30 billion of three-year notes today, $21 billion of 10-year debt tomorrow and $13 billion of 30-year bonds on Oct. 10.
The S&P GSCI gauge of 24 commodities advanced 0.6 percent. WTI rose to $103.66 a barrel and copper advanced 0.6 percent. Gold slipped 0.1 percent to $1,321.40 an ounce. Rubber surged 2.8 percent, extending its recovery from a two-month low in Tokyo amid speculation a glut of supply will shrink on record car sales and reduced output in India and Malaysia.
----With assistance from Sharon Cho in Seoul, Yoshiaki Nohara in Tokyo, Claudia Carpenter, Paul Dobson, Andrew Rummer, Sofia Horta e Costa in London. Editors: Stephen Kirkland, Stuart Wallace
To contact the reporters on this story: Stephen Kirkland in London at skirkland@bloomberg.net;
To contact the editor responsible for this story: Stuart Wallace at Swallace6@bloomberg.net
