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Investors averse on geopolitical turmoil

By Will Hadfield and Nick Gentle, Bloomberg

July 18, 2014 • Reprints

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.

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About the Author

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Gold 7527bank 6455Bloomberg 5254metal 3075European Union 2864S&P 500 2456stocks 2123Standard & Poor 2008yen 1270Treasuries 1005Michigan 789United Nations 783WTI 731London Metal Exchange 588Copper 515Russia 508Vladimir Putin 362ukraine 319VIX 216Thomson Reuters 215Google 110the University of Michigan 110General Electric Co. 87Nickel 81International Business Machines Corp. 78Rabobank International 64airline 53technology shares 44rand 43Lira 36United Nations Security Council 29AbbVie Inc. 16Shire Plc 15rupiah 10Malaysian Airlines 10wireless networks 10equipment 7Ashburton Ltd. 6Ericsson AB 5Volvo AB 4Lyn Graham-Taylor 4Ryanair Holdings Plc 3Nick Skiming 3Veronika Pechlaner 3Malaysian Airline System Bhd 2Google Inc. International 1Air France-KLM 1

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