Stocks, Commodities Decline on Draghi; Treasuries Gain
U.S. stocks fell for a fourth day and Spanish bonds tumbled after European Central Bank President Mario Draghi failed to reassure investors he was ready to take immediate steps to support the economy. Treasuries gained, while the euro and commodities declined.
The Standard & Poor’s 500 Index slid 0.7 percent to 1,365 as of 4 p.m. in New York, bringing its weekly loss to 1.5 percent. Spain’s IBEX 35 fell 5.2 percent and the Stoxx Europe 600 Index declined 1.3 percent. The euro weakened 0.4 percent to $1.2182. Oil slumped 2 percent to $87.13 a barrel. The 10-year Treasury yield lost four basis points to 1.48 percent. Spanish 10-year yields advanced 43 basis points to 7.16 percent.
Draghi signaled the bank will join forces with governments to buy sovereign bonds in sufficient quantities to ease the region’s debt crisis, while conceding that Germany’s Bundesbank has reservations about the plan. ECB officials are working on the plan and details will be fleshed out in coming weeks, he said after keeping the benchmark interest rate on hold at 0.75 percent. The Bank of England held its key rate at 0.5 percent.
“The market is clearly disappointed with the ECB announcement this morning,” John Bailey, chief executive officer and founder of Spruce Private Investors, which manages $3 billion, said on a phone interview. Draghi “built up expectations, as we saw in the rally last week, and this disappointment is a function of strong talk from Europe, followed by inaction.”
Yesterday, the American central bank also failed to bolster confidence. The Federal Reserve’s pledge to provide additional support for the economy disappointed investors anticipating a more definitive sign of further monetary easing. The S&P 500 rose as much as 29 percent from its October 2011 low amid bets the central bank would add further economic stimulus.
The number of Americans filing applications for unemployment benefits rose less than forecast last week as annual auto shutdowns continued to influence the number, Labor Department figures showed today before tomorrow’s monthly payrolls report. U.S. jobless claims climbed by 8,000 to 365,000. The median forecast of 47 economists surveyed by Bloomberg News called for an increase to 370,000.
The employment report for July is projected to show payrolls increased by 100,000 after a 80,000 gain in June, according to the Bloomberg survey median. The jobless rate, which has been stuck above 8 percent since February 2009, was probably at 8.2 percent for a third moth.
Orders placed with U.S. factories unexpectedly declined in June, another report showed today, reflecting less demand for business equipment and the biggest decrease in bookings for non- durable goods in more than three years.
The S&P 500 (SPX) has fallen 1.5 percent this week, poised for the first decline in four weeks and its biggest drop since June 1. Knight Capital Group Inc. (KCG) plunged 63 percent today after saying losses from a trading breakdown are $440 million, more than some analysts had estimated, as it explores strategic and financial alternatives.
Alcoa Inc. (AA), JPMorgan Chase & Co. (JPM) and General Electric Co. (GE) dropped at least 1 percent to pace losses in the biggest companies. General Motors Co. (GM) slid 2.6 percent as the automaker said second-quarter profit slumped 38 percent. Bristol-Myers Squibb Co. (BMY) fell 8.6 percent after suspending a mid-stage trial of an experimental hepatitis C drug and as an executive was accused of insider trading. Abercrombie & Fitch Co. (ANF) tumbled 15 percent as the retailer cut its forecast.
The Stoxx Europe 600 Index lost 1.3 percent. Banks pulled the gauge lower, with Banco Santander SA (SAN) and Deutsche Bank AG losing at least 5.2 percent. Veolia Environnement SA plummeted 12 percent after the French utility said the economy in Italy and France hurt first-half results. Deutsche Post AG rose 2.3 percent after earnings beat estimates.
Financial markets and politicians had ratcheted up pressure on the ECB to act after Draghi pledged last week to do “whatever it takes” to save a euro battered for almost three years by spiraling bond yields in countries from Spain to Greece. The Bundesbank reiterated last week that it opposes further purchases of sovereign debt by the ECB, as they blur the line between fiscal and monetary policy.
“The market was anticipating we would get an actual plan as opposed to the measures that they appear to be considering,” said Jim Vogel, head of agency-debt research at FTN Financial in Memphis, Tennessee. “It doesn’t quite match the buildup to this morning’s press conference. It’s not yet the all-clearing announcement that people were anticipating.”
Pacific Investment Management Co.’s Mohamed El-Erian called recent declines in purchasing manager indexes in Europe and Asia “frightening” and said the world economy is suffering its severest slowdown since the global recession ended in 2009.
El-Erian, who is chief executive officer of the Newport Beach, California-based Pimco, predicted global growth of 2.25 percent over the next 12 months. That’s down from the 3.9 percent in 2011 and 5.3 percent in 2010 recorded by the International Monetary Fund. The world economy contracted 0.6 percent in 2009.
“This is a serious, synchronized slowdown,” El-Erian said in an interview today.
The euro dropped 0.7 percent to 95.27 yen after rising as much as 1.1 percent today. The European currency weakened against 15 of its 16 major counterparts.
Italy’s 10-year yield climbed 40 basis points to 6.33 percent. The German 10-year bund yield tumbled 14 basis points to 1.23 percent.
The S&P GSCI Spot Index of commodities tumbled 1.1 percent. Crude oil lost 2 percent, extending its decline for the year to 12 percent. Copper slid 2.5 percent in New York and gold futures retreated for a third day.
Corn fell 0.6 percent, capping its longest losing streak since June, as some lawmakers urged the U.S. to amend an alternative-fuel mandate, dimming prospects for demand. The worst U.S. drought since 1956 sent corn prices to a record this week, raising the prospect of higher grocery bills as the cost of grain-based livestock feed jumped.
The MSCI Emerging Markets Index (MXEF) retreated 1 percent, snapping a five-day rally. The Hang Seng China Enterprises Index (HSCEI) lost 1 percent, its steepest drop since July 23. The Shanghai Composite Index slipped 0.6 percent, as Poly Real Estate Group Co. (600048), China’s second-largest property developer, tumbled 9.2 percent, the most since April 2010. Russia’s Micex Index dropped 1.3 percent, while India’s Sensex Index declined 0.2 percent.
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