WASHINGTON (Reuters) – Two Democratic senators on Friday called for an amendment to the financial reform bill, asking U.S. regulators to report on the causes of Thursday’s market plunge and whether circuit breakers are needed for computer-driven trading.
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Fear Trumps Fundamentals as Stocks Turn Negative for 2010
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May 7 (Bloomberg) — Crude oil tumbled, capping its biggest weekly decline in 16 months, on concern Europe’s debt crisis will derail the global economic recovery.
Futures dropped as much as 3.4 percent as equities fell amid speculation Greece’s debt crisis will spread to other countries. German Chancellor Angela Merkel said euro-area countries must speed up efforts to tighten financial regulation and pursue budget consolidation. “The continued problems over in Europe seem to be infecting the rest of the world,” said Sean Brodrick, a natural resource analyst with Weiss Research in Jupiter, Florida. “If this thing continues it could really hurt the chances of a global recovery.”
Crude oil for June delivery fell $1.96, or 2.5 percent, to $75.15 a barrel at the 2:30 p.m. close of floor trading on the New York Mercantile Exchange. Earlier, it touched $74.51 a barrel, the lowest level since Feb. 16. Futures are down 13 percent for the week, the biggest drop since the week ended Dec. 19, 2008.
Oil settled at an 11-week closing low of $77.11 in New York yesterday after the euro fell against the dollar and the Dow Jones Industrial Average lost as much as 998.5 points, a 9.2 percent plunge that was the biggest intraday percentage loss since 1987.
Futures touched $87.15 a barrel on May 3, the highest level since October 2008.
Shakeout ‘Overdue’
“The oil market was overdue for a shakeout like this,” said Addison Armstrong, director of market research at Tradition Energy, a Stamford, Connecticut-based procurement adviser. “Eighty-seven dollars certainly wasn’t a justifiable level based on the fundamentals and if you start thinking about the potential ramifications for economic growth of what’s happening in Europe.”
A 110 billion-euro ($140 billion) aid package to avoid a default by Greece has failed to prevent bond yields from rising, driving up borrowing costs for countries including Spain and Portugal. Moody’s Investors Service yesterday placed Portugal on review for a possible downgrade.
U.S. payrolls jumped 290,000 last month, more than the median estimate of economists surveyed by Bloomberg News, after a revised 230,000 increase in March that was larger than initially estimated, figures from the Labor Department in Washington showed today.
If commodities and equities “struggle to move higher in the wake of this positive report, the specter of bearish forces for growth may be larger than participants are currently pricing in and could push commodity and equity markets lower,” said Jason Schenker, president of Prestige Economics LLC, an Austin, Texas-based energy consultant, in a report today.
Equities Fall
The Standard & Poor’s 500 Index fell 1.1 percent to 1,115.35 at 2:42 p.m. after plunging as much as 3 percent. The Dow Jones Industrial Average lost 135.65 points, or 1.3 percent, to 10,384.67.
The Reuters/Jefferies CRB Index of 19 commodities fell 0.7 percent to 260.98, the weakest since Feb. 5. Six of the commodities retreated, led by cocoa, crude and heating oil. “The market is not getting over the concerns of where we end up after the Greece situation gets resolved,” said John Kilduff, a partner at Round Earth Capital, a New York-based hedge fund that focuses on food and energy.
Record supplies of oil at Cushing, Oklahoma, the delivery point for New York-traded futures, have widened the price differential for oil for delivery in June and July. The July contract was $3.39 a barrel more expensive than the June contract today, the widest spread between the two most active oil contracts on the Nymex since Feb. 17, 2009.
Supplies
Oil inventories at Cushing jumped 1.68 million barrels, or 4.9 percent, to 36.2 million barrels, the largest amount in Energy Department data going back to 2004. Overall U.S. stockpiles gained 2.76 million barrels, or 0.8 percent, to 360.6 million barrels, the highest level since June. The figure is 5.4 percent above the average over the past five years.
Brent oil for June settlement declined $1.42, or 1.8 percent, to $78.41 a barrel on the London-based ICE Futures Europe exchange.
Oil volume in electronic trading on the Nymex was 946,806 contracts as of 2:34 p.m. in New York. Volume totaled 1.16 million contracts yesterday, 64 percent above the average of the past three months. Open interest was 1.48 million contracts, the highest level since March 13, 2008.
To contact the reporters on this story: Margot Habiby in Dallas at mhabiby@bloomberg.net .; Aaron Clark in New York at aclark27@bloomberg.net .
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May 7 (Bloomberg) — Stocks in emerging Europe, the Middle East and Africa offer “great buying opportunities,” especially Russia, after a selloff that overlooks the region’s economic growth prospects, according to Goldman Sachs Group Inc.
Concerns Europe’s debt crisis and Chinese curbs on lending will slow the global recovery have led to a plunge in developing-nation assets, creating “attractive entry points” for investors in a region bound to benefit from accelerating economic growth, analysts Sergei Arsenyev and Victor Baybekov wrote in a report dated yesterday.
The MSCI EM Eastern Europe Index plunged 4.6 percent today, the most since October, and is down 20.3 percent from its April 15 peak, marking a so-called bear market. Russia’s Micex Index tumbled 5.6 percent. The gauge closed down 11 percent from an April 15 peak yesterday, entering a so-called correction.
“Sentiment will likely continue having a negative impact” on the region, especially on Russia and Turkey, the analysts wrote. “However we believe that they are currently in the sweet spot of accelerating gross domestic product growth and attractive valuations,” the analysts wrote.
The Czech PX Index also entered a correction yesterday and Turkey’s ISE National 100 Index and Hungary’s BUX Index today fell more than 10 percent from recent peaks. Equity benchmarks in Kazakhstan and Romania have lost 19.9 and 19.97 percent respectively from 2010 highs.
Russian Stocks
“The best way to take advantage of the market selloff is through increasing exposure to the domestic demand theme across sector,” Goldman’s analysts wrote in the report, adding retailer X5 Retail Group NV, property developer LSR Group and telecommunications provider AFK Sistema to its CEEMEA Focus List. OAO Sberbank, the nation’s biggest lender, “provides the best exposure to the domestic recovery,” according to Goldman.
“Russia has sold off sharply in the last two weeks” and investors should use “the current weakness to gain or increase exposure to what we believe are some of the most fundamentally attractive companies in Russia,” the analysts wrote.
To contact the reporter on this story: Krystof Chamonikolas in Prague at kchamonikola@bloomberg.net
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May 7 (Bloomberg) — European leaders sought to restore confidence in the euro as Greece’s escalating debt crisis threatened to engulf Portugal and Spain, testing the stability of the 11-year-old currency and rattling financial markets worldwide.
Leaders of the 16 countries sharing the euro plan to endorse a 110 billion-euro ($140 billion) aid package for Greece and mull ways of capping budget deficits to strengthen the management of the $12 trillion economy at a summit in Brussels tonight.
“We have to accelerate the regulation of the financial markets,” German Chancellor Angela Merkel told reporters before the summit. “We also have to take steps to secure the stability of the euro overall, that means a firm commitment by all that it is our common currency but also internally that we stiffen the Stability and Growth Pact including possible treaty changes.”
Europe’s failure to contain Greece’s fiscal crisis triggered a 4.3 percent drop in the euro this week and led the U.S. and Asia to rally around in a bid to prevent a global sovereign-debt crisis from pitching the world back into a recession.
The Brussels summit won’t announce new measures, instead sending a political message that the euro-area governments are united and willing to act, a French official told reporters on condition of anonymity. The summit started at 7 p.m. Final press conferences are slated for 10 p.m.
Intensive Debate
Austrian Chancellor Werner Faymann warned that any changes to the European Union’s governing treaties “might come at the end of the debate” and predicted the EU will have an “intensive debate before we develop our own financial-market instruments” such as a separate European credit-rating agency. He also urged a ban on short sales.
The extra yield that investors demand to hold Greek, Portuguese and Spanish debt instead of safer German bonds rose to euro-era highs today. The premium on 10-year government bonds jumped as high as 973 basis points for Greece, 354 basis points for Portugal and 173 basis points for Spain.
Europe’s unprecedented lending pledge for Greece has “proven insufficient to stop market contagion to the rest of the euro-zone periphery,” Michael Saunders and other economists at Citigroup Inc. said in an e-mailed note. “Different kinds of solutions are necessary to fix the underlying problems of the rest of the euro periphery other than Greek-style packages, and these are unlikely to come in the very short term.”
Turmoil
The spreading contagion prompted Group of Seven finance chiefs to hold an emergency conference call today, though no communiqué was put out afterwards.
“All the financial markets are now in turmoil,” Japanese Vice Finance Minister Rintaro Tamaki, the country’s top currency official, said before the G-7 call in an interview in St. Gallen, Switzerland. “The impact of the Greek crisis has gone beyond the border of the euro area. This is a global issue.”
In an echo of the worst days of the credit crisis of 1998, overnight deposits with the European Central Bank yesterday rose to a 10-month high as banks became more reluctant to lend to each other. The London interbank offered rate, or Libor, that financial institutions say they charge each other for three- month loans in dollars rose to the highest since August.
European stocks sank the most in 14 months today, with the Stoxx Europe 600 Index tumbling 3.9 percent to 237.18. The euro rebounded 0.7 percent to $1.2702, snapping four days of declines. It’s still down 15 percent since late November.
Government Bonds
ECB President Jean-Claude Trichet unsettled markets yesterday by signaling no immediate steps to stem the panic, denting global confidence in Europe’s handling of the severest crisis since the euro’s debut in 1999. Trichet resisted pressure to implement new policies to combat the crisis such as buying government bonds or offering banks access to more cash on better terms. He instead elevated his demand for governments to cut budget deficits and tried to quarantine the problem by saying Spain and Portugal are “not Greece.”
Greece will have Europe’s highest debt load by the end of 2010, equal to 124.9 percent of gross domestic product, according to European Commission forecasts. Portugal’s debt will be 85.8 percent and Spain’s 64.9 percent.
Global Crisis
After winning plaudits for handling the global crisis that began in 2007, Trichet has also seen his status eroded as politicians ignored his pleas for a fast aid pact and then objection to bringing in the IMF. He also has been forced to twice reverse the ECB’s position on Greece after originally saying it wouldn’t gear its policies to a single country. The ECB last month extended emergency collateral rules into next year and this week dropped all restrictions on Greek bonds to ensure they didn’t become ineligible for cash.
European leaders contributed to the tumult by taking two months to draft the Greek aid package after making a pledge of support on Feb. 11. Greece needs money in time to redeem 8.5 billion euros of bonds on May 19.
Nine governments have given formal approval to the package. Germany, the biggest contributor with as much as 22.4 billion euros over three years, fell in line today with endorsements in the lower and upper houses of parliament. A group of German academics filed a lawsuit to try to halt the payout.
Greek Prime Minister George Papandreou ruled out further steps at tonight’s summit, saying the point is to “reaffirm our confidence in our economies and our common currency and this I believe is a very important message for the global economic recovery.”
Longer-term measures to prevent future crises must include tougher sanctions on violators of deficit rules and better Europe-wide economic management, Finnish Prime Minister Matti Vanhanen said.
“Firm economic policy coordination enhanced by sanctions and pragmatic tax coordination are all possible,” Vanhanen said in a pre-summit appeal.
To contact the reporters on this story: James G. Neuger in Brussels at jneuger@bloomberg.net ; Tony Czuczka in Brussels at aczuczka@bloomberg.net .
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May 7 (Bloomberg) — Cocoa futures plunged the most in 13 months as the rout in global equities dragged most commodities lower. Coffee gained.
The Standard & Poor’s 500 Index headed for the biggest weekly decline since March 2009. Greece’s debt crisis threatened to spread in Europe, halting a worldwide economic recovery. The Reuters/Jefferies CRB Index of 19 raw materials slumped to a three-month low. The dollar eased against a basket of currencies, ending a four-day rally.
“Significant selling pressure in equities and currency fluctuations” drove cocoa lower, said Michael Maniatis, a market strategist at LaSalle Futures Group in Chicago. “A lot of times people will get out of risk-type investments like commodities.”
Cocoa futures for July delivery plunged $187, or 5.8 percent, to $3,016 a metric ton on ICE Futures U.S. in New York, the biggest drop for a most-active contract since April 6, 2009. This week, futures fell 6.9 percent, the most since late January.
Today’s decline accelerated as futures dropped below the 100-day moving average, an area of so-called technical support, Maniatis said.
Arabica-coffee futures for July delivery rose 0.7 cent, or 0.5 percent, to $1.339 a pound in New York, the first increase in four sessions. Futures dropped 1 percent this week.
To contact the reporter on this story: Whitney McFerron in Chicago at wmcferron1@bloomberg.net .
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May 7 (Bloomberg) — Treasury 10-year note yields headed for the biggest two-week decline since December 2008 as concern that European leaders will be unable to contain Greece’s debt crisis sent investors to the safety of U.S. government debt.
U.S. bonds swung between gains and losses today amid speculation the European Central Bank may come to the aid of Greece to try to halt contagion that undermined confidence in financial trading mechanisms. Treasuries tumbled earlier as a government report showed U.S. payrolls rose in April by the most in four years.
“The euro zone story has been hanging over the market, adding to uncertainty that continues to grow,” said George Goncalves, New York-based head of interest-rate strategy at Nomura Holdings Inc., one of 18 primary dealers that trade with the Federal Reserve. “Any weakness in the market is being met with more buying.”
The 10-year note yield was poised for a weekly decline of 22 basis points, or 0.22 percentage point, and a two-week drop of 38 basis points, the most since the security lost 58 basis points almost 17 months ago after the Fed cut the key interest rate to virtually zero and said it would buy long-term debt.
The benchmark note’s yield rose 3 basis points today to 3.42 percent at 2:25 p.m. in New York, according to BGCantor Market Data. It tumbled yesterday as much as 28 basis points and closed at 3.39 percent, the lowest level since Dec. 8. The two- year yield, also poised for a second weekly fall, rose 4 basis points to 0.82 percent.
Global stocks fell, with the Standard & Poor’s 500 Index sliding 1.2 percent and the MSCI World Index dropping 2 percent. Crude oil for June delivery fell as much as 3.4 percent to $74.51 a barrel in New York, the lowest level since Feb. 12.
Employment Gain
U.S. employers added 290,000 jobs last month after an increase of 230,000 positions in the previous month that was larger than initially estimated, the Labor Department reported today in Washington. The median forecast of 84 economists in a Bloomberg News survey was for a gain of 190,000. The unemployment rate rose to 9.9 percent.
Efforts by European leaders have failed to assuage investor concern that the region’s most indebted nations will struggle to pay off their debts. Leaders of the 16 countries sharing the euro plan to endorse at a summit in Brussels tonight a 110 billion-euro ($140 billion) aid package for Greece and consider ways of capping budget deficits.
Group of Seven nations officials met today by conference call and “agreed to continue to monitor the situation closely,” the U.K. Treasury said.
‘Looking for Action’
“They can talk until they are blue in the face — the markets are looking for action, and soon,” Kevin Giddis, head of fixed-income sales, trading and research at brokerage firm Morgan Keegan Inc. in Memphis, Tennessee, wrote in a note to clients. “We in this country have learned exactly what a crisis of confidence can do to a market and the economy.”
The rate banks say they pay for three-month loans in dollars rose the most in almost 16 months as lending sputtered amid concern financial institutions are holding too many assets of Europe’s most indebted nations.
The London interbank offered rate, or Libor, for three- month loans climbed 5.5 basis points to 0.428 percent today, the highest level since Aug. 17, according to British Bankers’ Association data. It was the biggest rise since Jan. 16, 2009.
‘Uncertainty’ the Enemy
“You need to have more of a widespread conviction that this is somehow being resolved, otherwise you’re going to continue to go through this uncertainty, and uncertainty is the enemy of any financial market,” said Kevin Flanagan, a Purchase, New York-based fixed-income strategist for Morgan Stanley Smith Barney.
Greece needs to reduce the nation’s debt through restructuring and impose deep spending cuts to exit its fiscal crisis, according to Pacific Investment Management Co.’s Bill Gross, manager of the world’s biggest mutual fund.
Job growth in the U.S. will need to continue for several months along the lines of today’s gain before the Federal Reserve considers raising interest rates, Gross said.
“The Fed’s not about to move, in my opinion, until we start to see significant, steady progress in terms of job growth and lower unemployment rates,” Gross said during a Bloomberg Radio interview with Tom Keene.
Futures on the CME Group Inc. exchange showed a 56 percent chance policy makers will raise the target rate for overnight bank lending by at least a quarter-percentage point by December, compared with 75 percent odds a month ago. The central bank has kept the rate between zero and 0.25 percent since December 2008.
The Treasury will auction $78 billion in notes and bonds next week, the first reduction in sales of coupon-bearing securities since May 2007. The department said May 5 it will sell $38 billion in three-year notes May 11, $24 billion in 10- year debt the next day and $16 billion in 30-year bonds May 13.
The total was less than the $80 billion median forecast in a Bloomberg News survey of the Fed’s primary dealers, which anticipated $39 billion in three-year notes and $25 billion in 10 year securities.
To contact the reporters on this story: Cordell Eddings in New York at ceddings@bloomberg.net ; Daniel Kruger in New York at dkruger1@bloomberg.net
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May 7 (Bloomberg) — Investors should consider paring their holdings after a plunge in U.S. stocks yesterday, according to Jim Rogers and Marc Faber.
Equities had a “normal correction” and were “overdue for a sell-off” after rallying from last year’s low, Rogers, Singapore-based chairman of Rogers Holdings, told Bloomberg Television today. “The market was overbought, ahead of itself and due for a correction,” Faber, publisher of the Gloom, Boom & Doom report, said in a separate interview yesterday.
U.S. shares tumbled as waves of computerized trading exacerbated a selloff triggered by Europe’s debt crisis. While the rout briefly erased more than $1 trillion in U.S. market value as the Dow Jones Industrial Average plunged as much as 9.2 percent, the gauge closed 3.2 percent lower, the biggest decline since only April 20. The Standard & Poor’s 500 Index fell 3.2 percent, paring losses of as much as 8.6 percent.
“Being down 3 or 4 percent is a big, big number but that’s hardly panic, not yet,” Rogers said. According to Faber, recent declines suggest “that maybe we’ve made a major high in the latter part of April this year and that we will, from here on, have a more meaningful decline.”
Investors should “be very careful and cut back” on their holdings if they have any “doubt,” Rogers said. While a bankruptcy for Greece will be a “good thing” for the country and the euro, it may result in “great instability” for markets as investors worry about contagion in other economies including the U.K. and the U.S., he said.
Reduce Positions
Faber also advised investors to consider reducing their positions on any rebound in share prices.
S&P 500 futures rose 0.5 percent today. The Nasdaq OMX Group Inc. said it will cancel trades of stocks that moved more than 60 percent. Computerized trades sent to electronic networks turned an orderly decline into a rout, according to Larry Leibowitz, the chief operating officer of NYSE Euronext.
While the first half of the Dow’s plunge probably reflected normal trading, the selloff snowballed because of orders sent to venues with no investors willing to match them, Leibowitz said in an interview on Bloomberg Television.
Rogers, who predicted the start of the global commodities rally in 1999, favors so-called hard assets including silver on expectations of further “currency turmoil” in 2010 and 2011, he said in today’s interview. Eleven of the world’s 16 most- traded currencies have slid against the dollar since Oct. 28, when Rogers said the U.S. currency’s rally may last for “a while.”
Concern that a 110 billion-euro rescue package for Greece will need to be extended to other European nations has lifted borrowing costs for countries including Spain and Portugal and sent the euro to a 14-month low yesterday.
To contact the reporter on this story: Shiyin Chen in Singapore at schen37@bloomberg.net
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