Barefoot Investor: Stocks, Euro Pare Losses, Italy Bonds Gain

Global stocks trimmed declines, a day after the biggest selloff since March, and the euro pared losses after Italy and Greece sold debt and European governments worked to halt the region’s credit crisis.
The MSCI All-Country World Index fell 0.7 percent at 10:56 a.m. in New York, recovering from an earlier plunge of as much as 1.4 percent. The Standard & Poor’s 500 Index slipped 0.1 percent after futures on the gauge tumbled as much as 1.8 percent before U.S. exchanges opened. The euro was down 0.2 percent at $1.3964 after slumping as much as 1.4 percent. Italian bonds reversed losses, sending 10-year yields down 15 basis points to 5.53 percent. Sugar and zinc led gains in the S&P GSCI Index of commodities as it reversed early losses.

Riskier assets rebounded as Luxembourg Finance Minister Luc Frieden said selective default on Greek debt is not an option envisioned by euro-region finance ministers, while European Union Economic and Monetary Affairs Commissioner Olli Rehn said officials reached agreement that investors should play a role in a second bailout of Greece. EU President Herman Van Rompuy said he didn’t rule out calling an emergency summit on the debt crisis, even as no decision has been taken yet.

“There’s some stabilization taking place in the market, perhaps driven by rumors of European leader meeting later this week,” said Tim Hartzell, who oversees about $350 million as chief investment officer for Houston-based Sequent Asset Management. “The long-term situation is going to take a lot time to correct, there’s just too much debt. We will be servicing debt globally instead of consuming and that’s not good for equities.”

Earnings Season

Alcoa Inc. (AA), the largest U.S. aluminum producer, swung between gains and losses after second-quarter profit excluding certain items of 32 cents a share missed the 33-cent average estimate of 14 analysts surveyed by Bloomberg.

Alcoa unofficially started the earnings season in the U.S. after exchanges closed yesterday. Others reporting this week include JPMorgan Chase & Co., Citigroup Inc. and Google Inc. S&P 500 profits are forecast to have grown 13 percent in the quarter, the smallest increase in two years, according to data compiled by Bloomberg.

Cisco Systems Inc. (CSCO), the largest networking-equipment company, rallied 2.5 percent for the biggest gain in the Dow Jones Industrial Average. The company may cut as many as 10,000 jobs, or about 14 percent of its workforce, to revive profit growth, according to two people familiar with the plans.


Moving Averages

The S&P 500 is trading near the level of 1,316 that represents the convergence of the index’s mean price over the last 50 and 100 days, data compiled by Bloomberg show. Moving averages are cited by analysts who use price charts as points where buying may pick up or selling snowball as investors reconsider past decisions. The gauge’s 200-day level is 1,274, based on intraday swings.

Almost $1 trillion was wiped off the value of global equities yesterday while Italy’s 10-year yield jumped more than 40 basis points in two days and the Treasury yield dropped to the lowest this year. The link between sovereign risk and bank risk is potentially “explosive,” and in Italy it poses an “element of fragility,” European Central Bank Executive Board member Lorenzo Bini Smaghi said yesterday in Milan.


Greece Strategy Talks

European finance chiefs cast about for a strategy to halt Greece’s debt crisis as the contagion spread to Italy. The 17 euro governments pledged to flesh out a new master plan “shortly” after nine hours of talks yesterday. The meetings resumed today with all 27 EU finance ministers plotting a response to the release of bank stress tests later this week.

Spanish bonds erased declines, with the yield on the 10- year note decreasing 14 basis points to 5.89 percent. The Irish 10-year yield rose 22 basis points to the highest since before the euro was introduced in 1999, while the Greek 10-year yield slipped 25 basis points, after rising earlier. The yield on the German bund reversed earlier declines.

Italy sold 6.75 billion euros of treasury bills in its first auction since borrowing costs began soaring amid contagion from the Greek debt crisis. The Treasury in Rome said it sold the one-year bills, meeting its target, at an average yield of 3.67 percent. That compares with a yield of 2.147 percent when similar securities were last sold on June 10. Demand for the debt was 1.55 times the amount sold, compared with 1.71 times at the June auction.

Greece Bill Sale

Greece sold 1.625 billion euros of 182-day bills, the nation’s debt agency said. Investors bid for 2.88 times the securities offered, the Public Debt Management Agency said. Belgium’s borrowing costs for 12-month treasury bills rose to the highest level in more than 2 1/2 years as demand fell in the sale of 1.07 billion euros of the bills.

The U.S. sells $32 billion of three-year notes today, the first of three offerings totaling $66 billion.
The euro recovered losses after weakening as much as 1.5 percent against the Swiss franc, falling to a record low of 1.15533. The Dollar Index, which tracks the U.S. currency against those of six trading partners, was little changed after a two-day rally. The New Zealand dollar declined against all 16 of its most-traded peers monitored by Bloomberg, sliding 1.4 percent against the U.S. currency.

The Markit iTraxx SovX Western Europe Index of government credit-default swaps retreated from a record, slipping nine basis points to a mid-price of 282.

European Stocks

About seven shares declined for every two that gained in the Stoxx Europe 600 Index, which pared its loss to 0.7 percent after slumping as much as 2.7 percent. Banks in the gauge recovered, trading little changed after the group earlier slumped to a two-year low. Thomas Cook Group Plc (TCG), Europe’s second-largest tour operator, plunged 29 percent after cutting its full-year profit forecast.

The MSCI Emerging Markets Index retreated 1.7 percent. The Hang Seng China Enterprises Index tumbled 3.7 percent, the most since May 2010, after Moody’s Investors Service said some Chinese companies are engaging in potentially risky business practices. The Bombay Stock Exchange Sensitive Index dropped 1.7 percent as Infosys Ltd., India’s second-largest software exporter, forecast sales that missed analysts’ estimates.

The S&P GSCI index of commodities was little changed, reversing a 1.4 percent slide. Cotton dropped 4 percent and Brent crude oil slipped 1 percent for the biggest declines among 24 materials, while sugar rallied 4.3 percent and zinc increased 1.5 percent for the biggest gains.

Oil futures for August delivery rose 0.5 percent to $95.59 a barrel on the New York Mercantile Exchange after earlier dropping below the 200-day moving average for front-month prices. (Bloomberg)


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