U.S. Stocks Fall Most Since November, Euro Drops on Italy
U.S. stocks sank the most since November, while the euro and Italian bonds erased early gains, as Italy’s elections spurred concern of renewed turmoil in European markets. Natural gas, silver and gold led gains in commodities. The yen and Treasuries surged.
The Standard & Poor’s 500 Index slid 1.8 percent to 1,487.85 at 4 p.m. in New York after gaining as much as 0.7 percent in the first hour of trading. The VIX (VIX), the benchmark gauge of U.S. stock options, surged the most since 2011. The euro tumbled 0.9 percent to $1.3081 after jumping almost 1 percent. Italy’s 10-year yields increased four basis points to 4.49 percent after plunging as much as 28 points. Ten-year U.S. Treasury note yields decreased 10 basis points, the most since November, to 1.86 percent.
Italy may require another vote after partial election results suggested the four-way race may end in a divided parliament, an aide to Democratic Party candidate Pier Luigi Bersani said. Bersani, who led in opinion polls throughout the race, campaigned to maintain the budget rigor of outgoing Prime Minister Mario Monti. Forecasts by IPR Marketing and state broadcaster RAI showed Bersani winning the lower chamber and Silvio Berlusconi with a blocking minority in the Senate.
“We don’t want to see more chaos out of Europe,” Bruce McCain, chief investment strategist at the private-banking unit of KeyCorp in Cleveland, said in a phone interview. His firm oversees more than $20 billion. “Any question about whether or not Italy would be committed to austerity measures after the elections gets investors concerned.”
The S&P 500 last week completed its first weekly loss of the year after touching the highest level since October 2007 on Feb. 19. Investors are awaiting U.S. data this week including the Institute for Supply Management’s factory index, durable goods orders, household spending, the S&P/Case-Shiller index of home prices and fourth-quarter gross domestic product. Federal Reserve Chairman Ben S. Bernanke is due to testify before lawmakers tomorrow and the next day.
U.S. Commerce Department data on Feb. 26 may show new-home sales climbed in January, according to a Bloomberg survey. U.S. GDP probably expanded at a 0.5 percent annual rate in the fourth quarter, compared with the Commerce Department’s initial estimate on Jan. 30 that the economy contracted by 0.1 percent. The data will be released on Feb. 28.
President Barack Obama’s administration released a state- by-state report on how $85 billion in automatic spending cuts will degrade programs from defense to education to public health, as White House officials said they don’t expect to avert reductions scheduled to start March 1.
“Our hope is that we’ll be able to come to a solution,” Dan Pfeiffer, a senior Obama adviser, said in a conference call with reporters yesterday. “But there seems to be nothing the Republicans are saying right now on Sunday to suggest that by Friday they’re going to change their position.”
Among stocks moving today, gauges of financial, commodity and industrial shares tumbled more than 2 percent to lead declines among all of the 10 main industries in the S&P 500. Bank of America Corp., Caterpillar Inc. and Alcoa Inc. sank at least 2.5 percent for the biggest declines in the Dow Jones Industrial Average, which sank 216.4 points to a one-month low of 13,784.17. Trading of S&P 500 companies was 8.5 percent greater than the 30-day average.
Chesapeake Energy Corp. (CHK) slumped 6.8 percent after agreeing to sell a stake in an Oklahoma oilfield to China Petrochemical Corp. for less than one-third of its estimated value. ITT Educational Services Inc. tumbled 17 percent after disclosing that U.S. regulators subpoenaed documents related to private loan programs for its students. Hertz Global Holdings Inc., (HTZ) the largest publicly traded U.S. auto-rental chain, gained 1.7 percent after projecting profit and sales that beat estimates.
The Chicago Board Options Exchange Volatility Index, or VIX, climbed 34 percent to 18.99, the highest level of the year and its biggest advance since August 2011. The VIX, which measures the cost of using options as insurance against losses in the S&P 500, closed at the lowest level since April 2007 a week ago.
The euro weakened against 15 of 16 main counterparts after gaining against most earlier. Sterling recovered losses versus the euro after depreciating to the weakest level since October 2011. Moody’s Investors Service lowered Britain’s credit rating on Feb. 22 by one level to Aa1 from Aaa. Chancellor of the Exchequer George Osborne said he won’t give in to opposition calls to drop austerity policies after the downgrade.
Among European stocks, Deutsche Boerse AG jumped 5.6 percent, paring a gain of as much as 12 percent. CME Group Inc., the world’s largest futures exchange, has approached the Frankfurt-based exchange to consider beginning talks on a merger, according to four people familiar with the situation.
PostNL NV rallied 6.6 percent as the Dutch postal operator reported earnings that topped estimates. Elan Corp. surged 6.9 percent as RP Management LLC, an investor in royalty streams from pharmaceuticals, said it’s willing to buy the Irish drugmaker for about $6.5 billion.
Reckitt Benckiser Group (RB/) Plc slid 3 percent, the most in nine months, as U.S. regulators approved two rival generic versions of its Suboxone heroin-dependency treatment.
The yen strengthened more than 2 percent against all 16 major peers after weakening earlier. Japan’s currency and the pound have dropped more than 5 percent this year, the biggest decliners among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes.
Earlier losses in the yen came amid growing speculation that Japanese Prime Minister Shinzo Abe will nominate a central bank chief who favors stimulus. Abe is likely to call on Asian Development Bank President Haruhiko Kuroda, who said this month there is “substantial room” for easing, according to two officials with knowledge of the discussions.
“The market seems to have formed an opinion that Kuroda is a dove and if he indeed becomes the new BOJ governor, he would be willing to do much more to support growth,” said Geoffrey Yu, a senior currency strategist at UBS AG in London.
The S&P GSCI gauge of 24 commodities rose less than 0.1 percent after last week’s 2.6 percent drop, the biggest in 11 weeks. Silver for immediate delivery gained 1 percent for a third straight gain, the longest streak in a month, and spot gold increased 0.8 percent to $1,594.35 an ounce. Wheat, cotton and nickel lost more than 1.5 percent for the biggest declines.
U.S. crude oil futures slipped 2 cents to settle at $93.11 per barrel. U.S. Secretary of State John Kerry signaled that a diplomatic solution to a standoff over Iran’s nuclear program is possible. U.K. natural gas for next-day delivery reached 77 pence a therm, the most in more than a year, as demand rose on colder-than-average weather. U.S. natural gas jumped 3.8 percent to the highest price in more than two weeks on forecasts for cold weather in the central and eastern U.S. that would stoke demand for heating fuel.
The MSCI Emerging Markets Index (MXEF) slipped 0.1 percent. The Shanghai Composite Index advanced 0.5 percent, while South Korea’s Kospi Index and Taiwan’s Taiex Index both slipped 0.5 percent. Russia’s Micex Index climbed 0.5 percent and India’s Sensex added less than 0.1 percent. Benchmark gauges advanced at least 0.7 percent in Turkey, Poland, the Czech Republic, Indonesia and the Philippines.
The shekel remained lower versus the dollar, weakening 1 percent, as the Bank of Israel kept its benchmark interest rate unchanged at its lowest in more than two years as rising house prices balanced slowing growth and inflation. Governor Stanley Fischer and the monetary policy panel held the rate at 1.75 percent. Ten of the 22 economists surveyed by Bloomberg forecast the decision, while the remainder predicted a quarter-point reduction.
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