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Early Markets: Stocks Fall as Spanish Bond Yield Surges

Monday, 09 July 2012 07:32 AM

Spain’s 10-year debt yield climbed above 7 percent and stocks fell as European finance ministers prepared to meet to hammer out a rescue plan for banks. U.S. equity-index futures slid before Alcoa Inc. reports earnings.

The yield on Spain’s 10-year bond jumped 13 basis points to 7.08 percent at 10:55 a.m. in London, and the German two-year note yields were below zero for the second day. The euro was little changed at $1.2288, after sliding to $1.2251, the weakest since July 2010. The Stoxx Europe 600 Index slipped 0.3 percent and Standard & Poor’s 500 Index futures retreated 0.4 percent. Corn rose 3.7 percent and oil gained 0.4 percent.

European finance ministers were gathering to work out crisis measures after leaders agreed last month to ease access to direct financing for banks and bailout mechanisms. Alcoa begins the second-quarter U.S. earnings season today, with analyst estimates compiled by Bloomberg indicating the first year-over-year profit decline for S&P 500 companies since 2009. Data showed Japan’s factory orders dropped, while Chinese Prime Minister Wen Jiabao said the nation’s economy faces “relatively large” downward pressure.

“All eyes will be on the meeting of European finance ministers today to put a halt to the one-step-forward, two-step- backward discussions on the European sovereign debt crisis,” Jeroen van den Broek, a credit strategist at ING Bank NV in Amsterdam, wrote Monday in a report. “To distract investors a bit, Alcoa will kick off the second-quarter earnings season today. It is doubtful that earnings will give positive impetus.”

Profit Drop

Two shares fell for every one that advanced in the Stoxx 600, which retreated for a fourth day. Michael Page International Plc decreased 4.7 percent after the U.K. recruitment company reported a decline in gross profit. Hays Plc, the recruiter that finds workers for Siemens AG, sank 2.8 percent.

The decline in S&P 500 futures indicated the U.S. gauge will drop for a third day. Alcoa fell 1.3 percent in Germany. The biggest U.S. aluminum producer is due to release results after the close of New York trading.

Analyst estimates compiled by Bloomberg project a 1.8 percent decline in profit for S&P 500 companies in the second quarter, which would be the first year-over-year decrease since 2009. Revenue is projected to increase by 2.5 percent.

The difference in yield investors demand to own Spanish 10- year bonds over benchmark German bunds climbed 15 basis points to 578 basis points, within 11 basis points of the June 18th record. Spanish 30-year bonds yields increased six basis points to 7.32 percent, after rising to a euro-era record 7.327 percent.

German two-year note yields were at minus 0.003 percent from minus 0.010 percent on July 6. The government sold 3.29 billion euros ($4.04 billion) of six-month bills at a record-low yield of minus 0.0344 percent, according to a statement from the Bundesbank today.

Default Risk

The Markit iTraxx SovX Western Europe Index of credit- default swaps on 15 governments climbed for a fourth day, rising 2.5 basis points to 287.

Corn advanced to $7.1925 a bushel, the highest since Sept. 15, and soybeans increased as much as 2.7 percent to $15.4575 a bushel, the highest since July 2008, as amid the worst U.S. drought since Ronald Reagan was president.

The MSCI Emerging Markets Index lost 1.1 percent, declining for a fourth day. The Shanghai Composite Index slipped 2.4 percent. Benchmark gauges in South Korea, the Philippines, Thailand, Indonesia, Poland and the Czech Republic dropped more than 1 percent.

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Monday, 09 July 2012 07:32 AM
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