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September 29, 2010

Europe Stocks Slide, Emerging Markets, Metals Gain; U.S. Futures Retreat
By Paul Armstrong – Sep 29, 2010

European stocks fell for a third day, led by banks, on concern the cost of bailing out nations including Ireland and Spain is mounting. The MSCI Emerging Markets Index rose to a 27-month high and copper rallied.

The Stoxx Europe 600 Index lost 0.2 percent at 12:43 p.m. in London, while the MSCI index of developing nations climbed 0.8 percent. U.S. futures on the Standard & Poor’s 500 Index were little changed after paring an earlier decline. Copper traded above $8,000 a metric ton for the first time since April and the Dollar Index declined 0.3 percent. Borrowing costs for Portugal and Spain rose relative to Germany, Europe’s biggest economy.

Spain’s top credit rating at Moody’s Investors Service, held since 2001, is at risk as the euro region’s fourth-biggest economy struggles to emerge from recession, according to a Bloomberg News survey. Ireland is due to announce the cost of bailing out state-owned lender Anglo Irish Bank Corp. tomorrow. Manufacturing in China, the fastest-growing major economy, accelerated for a second straight month in September.

“China is one of the props for global growth,” said Nigel Rendell, senior emerging-market strategist at RBC Capital Markets in London. “The euro-zone picture is a little more mixed at the moment. The domestic situation in Europe is not great.”

Three-Week Low

The Stoxx 600 slipped to its lowest level in three weeks. HSBC Holdings Plc, Europe’s biggest bank, fell 1.7 percent, as did BNP Paribas SA, France’s largest lender. Hennes & Mauritz AB led a selloff in the region’s retailers, tumbling 6 percent after profit missed estimates.

BP Plc limited the index’s declines, gaining 2.3 percent after the Associated Press cited Steve Scalise, a Louisiana Republican Congressman, as saying a possible settlement with the energy company over the Gulf of Mexico spill was under discussion. A U.S. Justice Department official said no talks were underway. Rolls-Royce Group Plc surged 4.1 percent after its shares were upgraded at Morgan Stanley.

The decline in U.S. futures indicated the S&P 500 may pare yesterday’s 0.5 percent advance. The gauge has rallied about 9 percent since the end of August, poised for its best month since April 2009 and its biggest September rally since 1939, amid optimism that Europe’s debt crisis and U.S. unemployment won’t derail the economy and speculation the Federal Reserve will buy more U.S. government debt. Hewlett-Packard Co. advanced 0.9 percent in Germany after the world’s largest computer maker predicted earnings and sales that exceeded estimates.

Treasury Auctions

The U.S. is scheduled to auction $29 billion of seven-year debt today, the last of three note sales this week totaling $100 billion. The notes being sold yielded 1.88 percent in pre- auction trading, compared with 1.989 percent at the previous auction of the securities on Aug. 26.

Three Federal Reserve officials are speaking today, Charles Plosser in Vineland, New Jersey, Eric Rosengren in New York and Narayana Kocherlakota in London.

The MSCI China Index advanced 1.5 percent, leading gains among equity gauges in major emerging markets, after a purchasing managers’ index released today by HSBC Holdings Plc and Markit Economics rose to the highest level in five months. Developing-nation currencies appreciated, led by a 0.6 percent gain in the Taiwan dollar to its strongest level versus the U.S. currency since August 2008. India’s rupee and the Philippine peso strengthened against the greenback.

Copper for delivery in three months gained 1 percent to $8,025 a metric ton on the London Metal Exchange. China is the world’s largest buyer of copper. Crude oil futures for November delivery climbed 0.2 percent to $76.31 a barrel on the New York Mercantile Exchange.

Spanish Yields

Spanish 10-year bond yields rose 3 basis points relative to benchmark German bunds, leaving the so-called yield spread at 195 basis points, after earlier increasing to the widest since July 15. The Irish-German spread widened to a record 454 basis points, or 4.54 percentage points, while the Portuguese-German spread added 6 basis points to 433 points. A basis point is 0.01 percentage point.

The equivalent Treasury yield was little changed at 2.47 percent, close to a 20-month low, before a report that’s forecast to show U.S. manufacturing activity slowed this month. The Markit iTraxx SovX Western Europe Index of credit-default swaps insuring the debt of 15 governments fell from a three- month high, dropping 3 basis points to 160, according to data provider CMA.

Spain’s Rating

Five of eight money managers surveyed by Bloomberg predicted Spain’s credit rating at Moody’s would be reduced by one step to Aa1, with the rest forecasting a two-level cut to Aa2. The decision may come this week after the New York-based rating company placed the nation’s debt on review for a possible downgrade on June 30, saying it would conclude the analysis within three months. The managers oversee about $700 billion between them.

An index of executive and consumer sentiment in the 16 nations that share the euro rose to the highest level since January 2008 this month, the European Commission in Brussels said today.

The Dollar Index, a measure of the U.S. currency against six trading partners, fell to 78.78, after touching 78.616, the least since Jan. 28. The greenback fell 0.2 percent $1.3613 per euro and weakened 0.3 percent to 83.62 yen. The euro also dropped 0.1 percent against the yen, to 113.83.

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