In the U.S.: Stocks, Euro Decline on Debt Crisis Concern

5 January 2012

Clear signs that trouble out of Europe is not close to being over. Stocks to retreat in early trading sessions.

Stocks (MXWD) and the euro declined on concern Europe will struggle to contain the debt crisis as borrowing costs rose at sales of securities by France and Hungary. U.S. futures dropped, signaling the Standard & Poor’s 500 Index will retreat for the first time this year.

The Stoxx Europe 600 Index (SXXP) lost 0.8 percent at 7:25 a.m. in New York as UniCredit SpA, Italy’s biggest bank, tumbled for a second day. S&P 500 futures slid 0.7 percent. The euro weakened 0.9 percent to $1.2827, and French 10-year bond yields rose five basis points. Hungary’s forint sank 0.6 percent to 322.66 against the euro.

Greek Prime Minister Lucas Papademos said yesterday deeper cuts in incomes and an accord on foreign aid are the only way for the country to avert economic collapse and a “disorderly default.” France sold 10-year bonds at an average yield of 3.29 percent, up from 3.18 percent in December, and Hungary’s one- year bill yield climbed to the highest level since 2009. The U.S. service industry probably grew last month and jobless claims fell last week, economists said before reports today.

“We expect the euro-zone recession to deepen early in the year and for European financial-market pressures to remain intense in the next few months,” said Dominic Wilson, chief market economist at Goldman Sachs Group Inc. in Frankfurt.

The decline in the Stoxx 600 extended yesterday’s 0.6 percent drop. UniCredit slid 12 percent to the lowest level since 1992 after yesterday plunging 15 percent on plans to sell shares in a rights offer at a 43 percent discount.

Banks Decline

Societe Generale SA retreated 3.9 percent as the French bank said it plans to cut about 1,580 jobs at its corporate and investment banking unit. Banco Comercial Portugues SA and Banco Espirito Santo SA lost more than 7 percent in Lisbon.

The decline in S&P 500 futures indicated the U.S. equities gauge will drop for the first time this year. The Institute for Supply Management’s non-manufacturing index, due for release at 10 a.m. New York time, rose to 53 in December from 52 the previous month, according to a Bloomberg survey of economists. Fifty is the dividing line between expansion and contraction in the services gauge.

A separate release may show the number of applications for jobless benefits fell last week. The data comes before tomorrow’s payrolls report from the Labor Department, which is forecast to show the U.S. economy generated 150,000 jobs last month, according to an economist survey.

Aid Talks

Hungary’s BUX Index (BUX) fell 2.6 percent, taking its three-day decline to 5.8 percent. The average yield on Hungarian 12-month bills jumped to 9.96 percent from 7.91 percent at the last sale of the same maturity on Dec. 22, according to auction results on the state debt management agency’s Bloomberg page. Poland’s WIG20 Index lost 2 percent, and the Czech PX sank 2.5 percent.

Russia’s Micex Index slipped 0.7 percent as oil in New York fell 0.4 percent to $102.82 a barrel, the first decline in three days. The Shanghai Composite Index lost 1 percent.

The yield on France’s 10-year bond rose to 3.36 percent. The extra yield (.FRANGER) investors demand to hold French 10-year debt instead of benchmark German bunds rose 10 basis points to 149 basis points.

The European Financial Stability Facility is selling 3 billion euros ($3.9 billion) of bonds at a yield spread of almost seven times its first issue a year ago after euro-region sentiment worsened.

The bailout fund will price its February 2015 notes to yield 40 basis points more than the benchmark swap rate today, a banker involved in the deal said. That compares with the six basis-point spread it paid to sell 5 billion euros of July 2016 bonds Jan. 25, 2011, according to data compiled by Bloomberg.

The Dollar Index (DXY), which tracks the U.S. currency against those of six trading partners, climbed 0.7 percent. The euro slid 0.7 percent against the yen, approaching an 11-year low, and depreciated 0.3 percent versus the pound.


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