April 28 (Bloomberg) — Stocks worldwide tumbled, with the Standard & Poor’s 500 Index falling the most since February, and the dollar and Treasuries rose as credit-rating downgrades of Greece and Portugal fueled concern debt-laden nations are moving closer to default. Greek, Portuguese and Irish bonds sank.
The MSCI Asia Pacific Index declined 1.4 percent at 9:30 a.m. in Tokyo. The S&P 500 lost 2.3 percent yesterday in New York. The Stoxx Europe 600 Index slid 3.1 percent, the most since November, and the euro dropped below $1.32 for the first time since April 2009. Yields on 10-year Treasuries tumbled 12 basis points to 3.68 percent. Greek two-year note yields soared to almost 19 percent and Portugal’s jumped to 5.7 percent as credit-default swaps on Europe debt surged to a record. Oil sank 2.1 percent, while gold rallied 0.7 percent.
S&P lowered Greek debt to junk and Portugal was cut two steps as contagion from Greece’s debt crisis spreads through the euro region. The downgrades come as German officials insist Greece must outline further steps to cut its budget deficit before they will endorse the release of funds from a 45 billion euro ($60 billion) rescue package. Financial shares led U.S. stocks lower as the Senate’s interrogation of Goldman Sachs Group Inc. executives spurred concern of tighter regulation.
“It’s the fear that Greece or Portugal may affect other areas of Europe and derail this economic recovery,” said Burt White, chief investment officer at LPL Financial in Boston, which oversees $379 billion. “There’s now a perception that we might see Greece or Portugal failing. If that happens, we may see more headwinds.”
Goldman Hearings
The ratings downgrades for Greece and Portugal were a one- two punch for securities markets distracted by the congressional testimony of Goldman Sachs executives in Washington. U.S. trading volume slipped while Fabrice Tourre, an executive director at the New York-based firm, read a prepared statement on his role marketing a collateralized debt obligation, then surged after the headlines on Greece were released.
U.S. senators probed the bank’s mortgage business with Senator Carl Levin asked why it sold a set of investments the lender had itself labeled “shitty.”
“What’s punctuating the downside of the market is the tense exchange between the Goldman Sachs executives and Carl Levin and other legislators,” said Matthew Kaufler, a money manager at Federated Clover Investment Advisors in Rochester, New York, which manages $3 billion. “From Wall Street’s perspective, the timing couldn’t be worse because it raises the specter of financial reform being pushed through with perhaps sharper teeth than it otherwise would have had.”
Goldman Rises
Goldman Sachs shares rose 0.7 percent, posting the only gain among 79 companies in the S&P 500 Financial Index. Goldman Sachs has still lost 17 percent since the Securities and Exchange Commission sued the company for fraud on April 16.
“The damage is already built into the stock price,” said Jason Weisberg, director of institutional trading at Seaport Securities Corp. on the floor of the New York Stock Exchange. “Their ability to make money is unprecedented and if the rules change they’ll figure out a new way to do it.”
Greece’s benchmark ASE equity index tumbled 6 percent to a one-year low. The market in Athens closed before S&P cut the nation’s rating. Portugal’s PSI-20 Index slumped 5.4 percent, the most since October 2008, and Ireland’s ISEQ Overall Index declined 4.5 percent, the biggest decline since October 2009. Spain’s IBEX 35 fell 4.2 percent.
Yields on 10-year Portuguese bonds jumped 48 basis points to 5.69 percent and Irish 10-year yields surged 19 basis points to 5.10 percent. Japan’s bonds advanced, pushing 10-year yields to the lowest level in four months. The yield fell 2.5 basis points to 1.28 percent.
Debt Insurance
Credit-default swaps on European sovereign debt surged to records. Contracts tied to Greek government bonds climbed 111 basis points to 821, according to CMA DataVision. Portugal rose 54 basis points to 365.
The International Monetary Fund last week raised its forecast for global growth this year while cautioning that a failure to contain soaring public debt may have “severe” consequences for the world economy. Global economic expansion may hit 4.2 percent in 2010, the fastest rate since 2007, the Washington-based fund estimated. “Fiscal fragilities” pose the biggest threat to meeting the forecast, the IMF said April 22.
The S&P 500 retreated from a 19-month high for a second day as growing concern over European debt overshadowed better-than- estimated earnings and consumer confidence. The Chicago Board Options Exchange Volatility Index, the benchmark index for U.S. stock options known as the VIX, surged as much as 33 percent, the most intraday since October 2008.
Winning Streak
The sell-off in the U.S. follows eight straight weeks of gains for the Dow Jones Industrial Average, the longest streak since 2004, and a 9.2 percent rally in the S&P 500 through April 23 that gave the index the largest advance among the world’s 15 biggest markets. The S&P 500’s valuation of 18.2 times earnings in the past 12 months matches its average over the last decade.
The dollar rose against all 16 major counterparts except the yen as investors fled riskier assets. The euro sank to a one-year low of $1.3166 against the greenback.
S&P lowered Greece’s credit rating to BB+ from BBB+ and warned that bondholders could recover as little as 30 percent of their initial investment if the country restructures its debt. The downgraded marked the first time a euro member has lost investment grade rating since the currency’s 1999 debut. S&P also reduced Portugal by two steps to A- from A+.
Greece said the downgrade of its rating by S&P doesn’t reflect the “real facts” of the economy, according to an e- mail from the country’s finance ministry this evening.
‘Sustainable’ Plan
German Chancellor Angela Merkel said yesterday she won’t release funds to help Greece shore up its finances until the nation has a “sustainable” plan to reduce its budget deficit. Germany’s Economy Minister Rainer Bruederle said Greece needs to present a plan to overcome its debt crisis as soon as possible.
“I think it’s directly related to Germany’s indecisiveness and whether they’re going to participate in the bailout,” said Matthew DiFilippo, director of research at Stewart Capital Advisors LLC in Indiana, Pennsylvania, which manages $1 billion. “If Germany doesn’t stand behind Greece, are they going to stand behind Portugal? Greece isn’t significant enough contributor to the EU overall in terms of GDP but it’s maybe just an implication of how this all plays out in other countries like Portugal and Ireland.”
Basic resources stocks posted the largest losses among 19 industry groups in the Stoxx 600, losing 4.8 percent as a group. BHP Billiton Ltd., the world’s biggest mining company, fell 4.2 percent in London. Antofagasta Plc, which owns copper mines in Chile, retreated 3.7 percent. Banco Popular Espanol SA declined 6.1 percent in Madrid after the Spanish lender said first- quarter profit slipped.
Copper Dives
Copper for three-month delivery dropped as much as 1.6 percent to $7,373 per metric ton, the lowest level since March 26, extending a 4.1 percent slump yesterday.
The MSCI Emerging Markets Index fell for the first time in three days, tumbling 1.9 percent. Brazil’s Bovespa index sank 3.4 percent, the most in almost three months, and the real fell the most in three weeks versus the U.S. dollar.
To contact the reporter for this story: Michael P. Regan in New York at mregan12@bloomberg.net .
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