Stocks fell and the euro weakened to a four-month low against the dollar, while Treasuries rallied and Italian and Spanish bonds slumped, as concern about Europe’s debt crisis deepened.
The Standard & Poor’s 500 Index slipped 0.2% at 12:18 p.m. in New York after rising to within two points of a record yesterday. The Stoxx Europe 600 Index slid 0.4%. The euro fell below $1.28 for the first time since November while the pound erased gains versus the dollar as a report confirmed U.K. gross domestic product shrank in the fourth quarter. Brazil’s real halted a six-day slump as the central bank took steps to stem the currency’s slide. Italy’s 10-year bond yield rose 18 basis points to 4.75%.
The S&P 500 trimmed its March gain to 3% and the Stoxx 600 pared its to less than 1%. The leader of Italy’s Democratic Party ruled out the possibility of a broad coalition government, while Cyprus prepared to publish details of capital controls it will apply to prevent deposit flight when banks reopen after being shut for almost two weeks. Fewer Americans signed contracts to purchase previously owned homes in February as limited inventory and access to credit held back a more robust recovery in housing.
The events in Cyprus are “a reminder that Europe has still very slow growth and the banking system has a lot of issues,” John Fox, a Cobleskill, New York-based fund manager and director of research at Fenimore Asset Management Inc., which manages about $1.5 billion, said over the phone. “Stocks aren’t going to go up 7% a month,” he said. “We really came out of the gate fast. There’s going to be corrections.”
Financial firms helped lead losses in U.S. stocks, with JPMorgan Chase & Co. and Citigroup Inc. pacing declines. Cliffs Natural Resources Inc. tumbled 15% after Morgan Stanley downgraded the shares. Dollar General Corp. slumped 1.9% after it said 30 million shares will be sold in a secondary offering.
The U.S. economy is facing the heaviest burden yet from federal spending cuts and tax increases, Federal Reserve Bank of New York President William C. Dudley said yesterday.
“Over the next three-to-six months, if the U.S. economy continues to show signs of improvement that will be very, very important,” Dudley said in an interview with CBS News that was posted today on its website. “The fiscal drag is at its most intense point today. If the economy can sort of power through that, I would actually think the second half of the year and 2014 would be better.”
The Stoxx 600 erased an earlier advance as financial, telecommunications and automobile companies led the equity benchmark lower. TDC A/S retreated 1.6% as the Danish phone operator’s private-equity owner put a 6.8% stake on sale. Safran SA dropped 1.2% as France sold about 13 million shares in Europe’s second-biggest maker of aircraft engines, according to the country’s finance ministry.
Mediaset SpA rallied 5.8% after reporting sales for 2012 that beat analysts’ estimates. The Italian broadcaster controlled by former Italian Prime Minister Silvio Berlusconi also said that it won’t pay a dividend for the first time.
The bailout in Cyprus that imposes levies on bank deposits is tailor-made for the country’s situation and is not a template for other nations, according to a document agreed on yesterday by representatives of euro-area finance ministries.
The statement pushed back against the impression given by Dutch Finance Minister Jeroen Dijsselbloem that spurred concern deposits in other nations may be vulnerable to similar so-called bail-ins. Banks in Portugal, Spain and Italy may come under funding pressure after the Cyprus rescue, the Institute of International Finance said in a report today.
“The precedent set by Cyprus and the political uncertainty in Italy mean that risk premia in the euro region will continue to go wider,” said Adam Cole, head of Group of 10 currency strategy in London at Royal Bank of Canada. “The risk of the bail-in of depositors in a future banking crisis has increased and market prices have to reflect that.”
The euro weakened against 15 of its 16 major peers and traded below its 200-day moving average for a third day against the dollar. The pound dropped 0.3% to $1.5115. GDP fell 0.3%, the same as previously estimated by the Office for National Statistics.
Sweden’s krona strengthened for a third day against the euro, appreciating 0.3%, as data showed consumer confidence rose more than economists estimated this month and retail sales jumped in February.
Italian five-year yields climbed as much as 21 basis points, the most in a month, to 3.55%. Italian 10-year yields extended their first quarterly increase since June as demand fell when the Treasury sold 6.91 billion euros ($8.84 billion) of debt at an auction today. Democratic Party leader Pier Luigi Bersani said there was no possibility of a broad coalition to end the deadlock caused by last month’s elections.
Spanish bonds fell with their Italian counterparts, pushing the 10-year yield up 14 basis points to 5.07%. The yield on benchmark 10-year German bunds fell seven basis points to 1.28% as investors sought Europe’s safest fixed-income assets.
Spain revised up the first estimate of its 2012 budget deficit after Eurostat requested it to change the way it computes tax claims. The budget shortfall was 6.98% of gross domestic product last year instead of the previously estimated 6.74%, Deputy Budget Minister Marta Fernandez Curras told reporters in Madrid today.
The cost of insuring against losses on senior European bank bonds climbed for a ninth day, with the Market iTraxx Financial index of credit-default swaps linked to 25 banks and insurers climbing 12 basis points to 202.
U.S. government securities rose for a third day. Treasury 10-year note yields slid six basis points to 1.85%, after touching 1.83%, the lowest since March 4.
Natural gas, gas oil and live cattle climbed at least 1% to pace gains among commodities in the S&P GSCI Index, while hogs, lead and coffee led declines.
Gold for immediate delivery reversed earlier losses to climb 0.5% to $1,605.10 an ounce. Silver declined 0.5%. West Texas Intermediate oil slipped 0.3% to $96.08 a barrel, the first decline in four days.
The MSCI Emerging Markets Index added 0.2% for a third straight gain. The Philippine Stock Exchange Index rallied 2.7% to a record after Fitch Ratings gave the country its first investment-grade debt rating. The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong increased 1% as Chinese banks reported lower bad-loan ratios.
Brazil’s real rose for the first time in seven days after the central bank announced an offering of foreign-exchange swaps to limit the currency’s decline. The real appreciated 0.2% to 2.0134 per dollar. The central bank announced an auction of 20,000 currency swap contracts in the first offering of its kind since Jan. 28.