Investors averse on geopolitical turmoil

U.S. stocks rose, after the Standard & Poor’s 500 index fell the most since April, as investors weighed earnings and geopolitical tensions. Treasuries dropped with gold, while European equities slid on concern the conflict in Ukraine is deepening.

The S&P 500 rose 0.2 percent at 9:30 a.m. in New York, as technology shares advanced on better-than-estimated sales from Google Inc. International Business Machines Corp. slid 1.3 percent as revenue slipped. The Stoxx Europe 600 Index fell 0.4 percent. The yield on 10-year notes rose two basis points, while the yen weakened against all of its major counterparts. Gold sank 0.8 percent.

Ten-year U.S. debt jumped the most since March yesterday, leading a rally in haven assets after a Malaysian Airlines jet went down over eastern Ukraine, killing all 298 people on board, just a day after the U.S. and the European Union imposed further sanctions on Russia over the conflict. The United Nations Security Council will hold an emergency meeting over the incident today. Equities extended losses and bonds rallied after reports that Israel began a ground operation in Gaza.

“It’s difficult for the situation in Ukraine to calm down, given that human losses are involved,” said Veronika Pechlaner, who helps oversee $2.3 billion at Jersey, Channel Islands-based Ashburton Ltd. “It comes at the worst possible time, a day after sanctions were announced against Russia. It’s a natural reaction for investors to be a bit risk averse.”

Missile strike

Ukraine’s state security service said it intercepted phone conversations among militants discussing the missile strike, which brought down flight MH17 near the eastern town of Torez, which is about 30 kilometers (19 miles) from the Russian border. Russia’s President Vladimir Putin said Ukraine’s government bore responsibility for the crash because it wouldn’t have occurred without the current strife in the east of the country.

The MSCI Emerging Markets Index lost 0.5 percent, erasing its advance this week. Russia’s Micex Index slid 1.7 percent, extending its weekly drop to 5.6 percent, the biggest decline since April.

Malaysian Airline System Bhd, which lost another plane in March, dropped to 11 percent, pushing the FTSE Bursa Malaysia KLCI to its lowest level in a month. The airline has slumped 35 percent this year.

The Chicago Board Options Exchange Volatility Index, the gauge of S&P 500 options prices known as the VIX, rallied 32 percent yesterday, the most since April 2013 to close at a three-month high.

Greater uncertainty

“There will be a greater level of uncertainty in the market today with yesterday’s events in Ukraine,” Nick Skiming, who helps manage $10 billion at Ashburton, said in a phone interview. “But big names such as Google will provide some fill. The U.S. is in a good place right now, with positive results from several domestically-focused companies.”

The S&P 500 had its biggest drop since April 10 as concern about the implications of escalating tension in Ukraine and the Middle East overshadowed corporate earnings reports.

About 76 percent of the S&P 500 companies that have posted results this season beat analysts’ profit projections, and 70 percent topped sales estimates, data compiled by Bloomberg show.

Google (NASDAQ:GOOG) posted revenue that exceeded analysts’ estimates. General Electric Co. (NYSE:GE) advanced 0.7 percent as profit climbed 8 percent to $3.9 billion in its second quarter. IBM (NYSE:IBM) fell after saying revenue dropped for a ninth quarter. AbbVie Inc. (NYSE:ABBV) lost 0.9 percent after agreeing to buy Shire Plc.

Confidence report

Thomson Reuters and the University of Michigan release the first reading of their consumer-confidence index at 9:55 a.m. New York time. The measure probably climbed to 83 this month from 82.5 in June, according to estimates compiled by Bloomberg.

Treasury 10-year yields climbed to 2.46 percent after yesterday tumbling eight basis points to 2.45 percent, the lowest rate in about seven weeks. German bonds were little changed, following a three-day run of gains.

Shares in European airlines dropped. Air France-KLM dropped 1.4 percent, while low-cost carrier Ryanair Holdings Plc retreated 1.3 percent.

Volvo AB (OTCMKTS:VOLVY) slid 5.3 percent, leading losses by industrial goods and services companies. The world’s second-biggest truckmaker released earnings that missed analysts’ estimates. Ericsson AB surged 8.2 percent after the supplier of equipment for wireless networks reported second-quarter sales and profit margins that exceeded analysts’ estimates.

Indonesia’s rupiah, South Africa’s rand and Turkey’s lira led gains among higher-yielding currencies as the yen weakened.

Japan’s currency fell against the euro for the first time in four days, weakening 0.2 percent to 137.07. It appreciated to 136.71 per euro earlier today, the strongest level since Feb. 5.

Geopolitical risks

“The market is quite insulated to geopolitical risks,” said Lyn Graham-Taylor, a fixed-income strategist at Rabobank International in London. “The amount of central-bank liquidity has desensitized the market to these events. It looks, as things currently stand, as though we are not going to get a huge bid for havens.”

Gold, which climbed 1.5 percent in the previous session, declined to $1,310.79 an ounce in London trading.

Industrial metals declined. Copper retreated 0.6 percent to $7,026 a metric ton on the London Metal Exchange, heading for the first decline in five weeks on speculation demand will slow in China, the biggest user of the metal. Nickel fell 2.5 percent to $18,730 a ton.

West Texas Intermediate crude advanced to $103.34 a barrel after surging 2 percent yesterday, the most in a month. Month- ahead U.K. gas, a European benchmark, fell 2 percent after gaining 6.9 percent yesterday, its biggest jump since March 3, according to broker data compiled by Bloomberg.

About the Author