Tags: Stocks | fall | US | debt

Stocks Fall, Franc Gains on House Vote Delay; Default Risk Rises

Friday, 29 Jul 2011 06:38 AM

 

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Stocks fell, the Swiss franc and yen strengthened and the cost of U.S. default insurance rose to the highest since March 2009 as American lawmakers called off a vote to increase the debt limit.

The MSCI All-Country World Index lost 0.5 percent at 6 a.m. in New York, extending the biggest weekly retreat in almost a year. Standard & Poor’s 500 Index futures sank 0.4 percent.

Five-year credit-default swaps on Treasuries climbed three basis points to 67 basis points. The yen strengthened against all 16 of its major peers, while the Swiss franc approached a record versus the euro. The 17-nation currency weakened 0.3 percent to $1.4288. Oil declined 0.6 percent to $96.90 a barrel.

House Republican leaders scrapped a vote on the debt ceiling bill late yesterday, fueling concern that a compromise by the two parties won’t be reached before the Aug. 2 deadline for a possible default on Treasuries. A report today may show the U.S. economy grew at a slower pace last quarter, according to analysts surveyed by Bloomberg.

“It’s unbelievable, these guys are not just playing with financial markets but their own constituents’ jobs,” said Shane Oliver, the Sydney-based head of investment strategy at AMP Capital Investors Ltd., which oversees about $100 billion. “It’s certainly adding to stock-market nervousness. I think they will eventually get a deal that avoids massive spending cuts or default, but the risk is growing that they won’t.”

Veolia, Vodafone

The Stoxx Europe 600 Index decreased 0.8 percent, bringing this month’s drop to 2.8 percent. Veolia Environnement SA plunged 7.6 percent as the world’s largest water utility said it won’t meet its profit target. Banco Santander SA, Spain’s biggest lender, led a gauge of banks to the largest decline among 19 industry groups, falling 2.5 percent. Vodafone Group Plc jumped 5.1 percent after the largest mobile-phone company announced a special dividend.

U.S. futures signal the S&P 500 may extend the biggest weekly retreat since August. The gauge has slipped 1.5 percent in July, its third consecutive monthly drop and the longest losing streak since November 2008. Motorola Mobility Holdings Inc., the handset maker spun off from Motorola Inc., sank 2.4 percent as it forecast profit that missed analysts’ estimates.

U.S. gross domestic product probably grew at a 1.8 percent annual rate in the second quarter, compared with 1.9 percent in the prior three months, according to the median forecast of economists surveyed by Bloomberg News. The report is due at 8:30 a.m. in Washington. The Institute for Supply Management-Chicago Inc.’s business barometer and the Thomson Reuters/University of Michigan final index of consumer sentiment are also scheduled for release today.

Treasury Bills

The yield on the 10-year Treasury slipped two basis points to 2.93 percent, extending yesterday’s four basis-point decline. Rates on $90 billion of six-month bills due Aug. 4 reached the highest in five months yesterday before paring gains after an official said U.S. debt holders will get priority if there’s no accord on Aug. 2. The rate rose as high as 0.2 percent, the highest level since they were issued in February.

The average rate for borrowing and lending Treasuries for one day in the repurchase-agreement market jumped to 13.2 basis points yesterday from nine basis points a day earlier, according to index data provided by the Depository Trust & Clearing Corp. The rate was 26.6 basis points on Aug. 2, 2010, the data show.

The Obama administration was scheduled to brief the public no earlier than after U.S. financial markets close today on priorities for paying the nation’s bills if the $14.3 trillion debt ceiling isn’t raised, a Democratic Party official said.

‘Close to Deadline’

“There’s a fair bit of uncertainty in the short term,” said Sean Fenton, who helps manage about $1.1 billion at Tribeca Investment Partners in Sydney. “The market has been reasonably calm, but we’re getting close to the deadline and they’re starting to worry more about the impact to U.S. growth if we don’t get a resolution soon.”

The cost of insuring European sovereign debt rose, with the Markit iTraxx SovX Western Europe Index of default swaps rising 6 basis points to 270.5. Contracts on Spain jumped 24.5 basis points to 270.5 and Italy was up 17 at 319.

The S&P GSCI Index of 24 commodities fell 0.4 percent, a third successive decline. Gold for immediate delivery retreated 0.2 percent to $1,613.35 an ounce, within 1 percent of a record $1,628.05 reached two days ago. Silver dropped as much as 1 percent to $39.35 an ounce. Zinc fell 1 percent in London.

The MSCI Emerging Markets Index slipped 0.9 percent, the most in nine days. Asian exporters led the retreat, with Samsung Heavy Industries Co. declining 2.6 percent in Seoul and Asustek Computer Inc. sinking 4.5 percent in Taipei. Russia’s Micex Index lost 0.5 percent as OAO Lukoil fell on lower crude prices. The lira weakened 0.3 percent versus the dollar after Turkey’s trade deficit widened to a record in June.

 


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