U.S. Stock Futures, European Shares Drop as Euro Falls; Crude Oil Declines

Monday, May 24, 2010
By Paul Martin

By David Merritt

May 24 (Bloomberg) — European stocks and U.S. index futures dropped while copper and oil retreated on concern that the turmoil from Europe’s debt crisis has further to run. Government bonds rose and the euro snapped three days of gains.

The Stoxx Europe 600 Index fell 0.5 percent to a six-month low at 12 p.m. in London. Futures on the Standard & Poor’s 500 Index slumped 1.1 percent. The S&P GSCI Total Return Index of 24 commodities retreated for an eighth day, the worst streak since February 2009. The yield on the 10-year Treasury note, a benchmark for borrowing rates around the world, declined eight basis points to 3.17 percent at 7:04 a.m. in New York, approaching a one-year low. The euro weakened 1.5 percent against the dollar and 1.4 percent compared with the yen.

Corporate bond sales are poised for their worst month in a decade, while relative yields are rising the most since Lehman Brothers Holdings Inc.’s collapse, as the response by lawmakers to Europe’s sovereign debt crisis fails to inspire investor confidence. The U.S., Spain and Greece are among developed nations whose borrowings put them in a “ring of fire” amid sovereign debt concerns, said Pacific Investment Management Co., which runs the world’s biggest bond fund.

“While the support declared by European leaders and the International Monetary Fund quelled concerns of sovereign risk spreading, Greece’s ability to refinance near-term debt remains a risk,” said John Wilson, head of the Australian unit of Newport Beach, California-based Pimco, in an e-mailed statement today. “Other developed countries in this ‘ring of fire’ are Ireland, Spain, France, U.S., U.K., Italy, Portugal and Japan.”

Spanish Takeover

The Bank of Spain removed the managers of CajaSur, a savings bank crippled by property loan defaults, and put the bank under a provisional administrator. Spain’s worst recession in 60 years has driven up defaults at the country’s banks, which have until the end of June to seek aid from a government fund of up to 99 billion euros ($123 billion) as the regulator seeks to hasten mergers between ailing lenders to ease over-capacity and help them recapitalize.

More than two stocks fell for every one that gained on the Stoxx 600 Index. Daimler AG fell 2.5 percent in Frankfurt and Fiat SpA dropped 1.7 percent in Milan, leading a decline in carmakers amid speculation that government efforts to reduce their budget deficits may curb economic growth. BP Plc and Repsol YPF SA declined more than 2 percent as crude oil fell below $70 a barrel in New York.

The decline in U.S. futures indicated the S&P 500 may pare some of its 1.5 percent rally on May 21, when U.S. stocks rebounded on from their biggest drop in a year. The S&P 500 is still 11 percent lower than its 2010 high in April even as economic reports including U.S. retail sales beat estimates and European governments committed as much as 860 billion euros ($1.1 trillion) to support their economies.

Not Over

“I don’t think we’re out of the woods yet,” Ted Weisberg, president of Seaport Securities in New York, said in an interview on Bloomberg Television. If gains from May 21 don’t continue, “we have our eyes on the exit and we’re not going to be afraid to walk through.”

The S&P 500 has entered a correction, defined as a decline of more than 10 percent from a peak, on average 421 days after the start of 12 bull markets since 1932, according to HSBC Holdings Plc. The selloffs on average took the measure 15 percent lower. The U.S. benchmark gauge has climbed 61 percent since entering its latest bull run on March 9, 2009.

Sales of previously owned homes in the U.S. probably rose in April to the highest level in five months as buyers took advantage of the last weeks of a government tax credit, economists said before a report today.

Home Sales

Purchases increased 5.6 percent to a 5.65 million annual rate, according to the median of 56 forecasts in a Bloomberg News survey. Sales would be the highest since November, the month the incentive was first due to expire. The National Association of Realtors’ report is due at 10 a.m. in Washington.

Asian stocks gained today on speculation Chinese policy makers will rein in efforts to cool the economy. The MSCI Asia Pacific Index rallied 0.4 percent, snapping six days of losses.

The MSCI Emerging Markets Index climbed for a second day, rising 0.4 percent. Chinese shares led gains, with the Shanghai Composite Index surging 3.5 percent for the biggest increase in seven months. Policy makers in the world’s fastest-growing major economy should be cautious in introducing new tightening measures as the global economic environment is complex, Xu Lianzhong, an official with the National Development and Reform Commission’s price monitoring center, wrote in a commentary published today in the China Securities Journal.

Commodities Fall

The S&P GSCI Index of commodities fell 0.3 percent as crude oil retreated 0.3 percent to $69.82 a barrel in New York. Copper for delivery in three months dropped 0.2 percent to $6,830 a metric ton on the London Metal Exchange. Gold for immediate delivery added 0.7 percent to $1,185.40 an ounce and palladium 1.9 percent to $445.15 an ounce.

The gains for Treasuries drove the yield to as low as 3.16 percent, six basis points short of its lowest level since May 18, 2009. Germany’s 10-year bund yield fell 4 basis points to 2.63 percent, within a basis point of the lowest since at least 1990.

The euro fell by the most in four days against the dollar, declining as much as 1.7 percent, before trading 1.4 percent lower at $1.2393. It weakened 1.3 percent versus the yen.

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