Stocks, Commodities Drop on Europe Concern; Bunds, Dollar Rise
Oct. 4 (Bloomberg) -- Stocks dropped and an index of raw materials fell to a 10-month low as European leaders signaled they may renegotiate terms of Greece's bailout. U.S. index futures declined, while German bonds and the dollar gained.
The MSCI All Country World Index sank 1.3 percent at 6:40 a.m. in New York. S&P 500 futures slid 0.4 percent, signaling U.S. shares may extend a drop that left the gauge within 1 percent of levels commonly seen as a bear market. Nickel, copper and oil led the S&P GSCI index of 24 commodities 1 percent lower. The yield on the 10-year German bund decreased nine basis points, its fourth straight decline, while the Dollar Index advanced 0.3 percent.
European finance chiefs meeting yesterday considered "technical revisions" for a second Greek bailout, Luxembourg Prime Minister Jean-Claude Juncker said today, fueling concern bondholders may have to take bigger losses on the nation's debt. U.S. factory orders probably stalled in August, economists said before a Commerce Department report. Goldman Sachs Group Inc. cut its global growth forecasts and predicted recessions in Germany and France.
"The rot has spread to every corner of the global markets," said Bill Blain, co-head of strategy at Newedge Group, a London-based brokerage. "The taint of fear is dragging down most assets, with indecision running rife."
The Stoxx Europe 600 Index retreated 2.4 percent as all 19 industry groups declined. Germany's DAX Index dropped 3.2 percent, France's CAC 40 declined 2.5 percent and the U.K.'s FTSE 100 slipped 2.4 percent. Greece's ASE plunged 4.6 percent to the lowest since 1993.
Deutsche Bank, Dexia
Deutsche Bank AG slumped 6.8 percent after abandoning its 2011 profit forecast and announcing plans to eliminate 500 jobs, as market volatility and unexpected costs on an indirect tax position weighed on third-quarter earnings. Dexia SA, Belgium's biggest bank by assets, tumbled 19 percent after its board asked the company to solve its "structural problems."
The S&P 500 slumped 2.9 percent yesterday to 1,099.23, the lowest since September 2010 and the exact closing level as on the same day three years ago.
U.S. factory orders were little changed in August, after a 2.4 percent gain the prior month, according to the median of 68 economists' forecasts in a Bloomberg survey. Federal Reserve Chairman Ben S. Bernanke is scheduled to testify today to a congressional panel about the economic outlook. The 30-year Treasury yield increased five basis points to 2.78 percent.
The yield on the Greek two-year note jumped 207 basis points, with the 10-year yield climbing 49 basis points. That drove the difference in yield over benchmark bunds 58 basis points higher to 21.38 percentage points.
Private Sector Involvement
As far as private sector involvement in a bailout is concerned, "we have to take into account that we have experienced changes since the decision we have taken on July 21," Juncker told reporters today after chairing a meeting of euro finance chiefs in Luxembourg. "These are technical revisions we are discussing."
Italian 10-year debt yields fell four basis points, with two-year yields dropping five basis points. The European Central Bank bought Italian government securities today, according to three people with knowledge of the transactions. A spokeswoman for the ECB declined to comment.
Credit-default swaps on Germany increased 3.5 basis points to 121.5 basis points, an all-time high, according to CMA. Swaps on banks also soared, with the Markit iTraxx Financial Index jumping 17 basis points to 306, according to JPMorgan Chase & Co. The record is 314 basis points, set on Sept. 12.
The euro traded 0.1 percent weaker at $1.3192, after declining to the lowest level since January. The dollar gained against 11 of its 16 major peers.
Australia Rates
Australia's dollar slumped against all 16 most-traded peers tracked by Bloomberg, falling to the lowest level in more than a year versus the U.S. currency, after the nation's central bank signaled it has scope to lower its benchmark interest rate. Governor Glenn Stevens held the overnight cash rate target at 4.75 percent, matching the prediction of all 22 economists surveyed by Bloomberg News.
The GSCI index of 24 commodities fell as much as 1.3 percent to the lowest since Dec. 1. Nickel dropped 2.8 percent, copper declined 2 percent and oil in New York retreated 1.7 percent to $76.33 a barrel. Gold rose 0.4 percent to $1,668 an ounce.
The MSCI Emerging Market Index slid 2.1 percent, extending a decline from its May 2 high to 31 percent. South Korea's Kospi Index sank 3.6 percent after the market was closed yesterday for a holiday. The MSCI China Index slumped 3.5 percent. PKN Orlen, Poland's largest oil refiner, led the WIG20 Index down 3.1 percent after saying it will probably post losses of "several hundred million" zloty in the third quarter from revaluation of foreign-currency debt. Benchmark gauges in Russia, the Czech Republic, Thailand and Indonesia fell at least 2.4 percent.
To contact the reporters on this story: Stephen Kirkland in London at skirkland@bloomberg.net Shiyin Chen in Singapore at schen37@bloomberg.net .
To contact the editor responsible for this story: Justin Carrigan at jcarrigan@bloomberg.net
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