Eurozone looking at dim future

The euro weakened after German confidence fell more than economists forecast. Stocks fluctuated with Treasuries while oil declined as investors watched developments in Ukraine.

The euro (CME:E6U14) dropped 0.2% against the dollar at 9:40 a.m. in New York. The Standard & Poor’s 500 Index (CME:SPU14) rose 0.1%, after the biggest two-day gain since April. The Stoxx Europe 600 Index was little changed. The yield on 10-year Treasuries (CBOT:ZNU14) slipped less than 1 basis point before an auction of $27 billion of three-year notes. Oil (NYMEX:CLQ14) retreated 0.9% and wheat (CBOT:ZWU14) lost 1.1% before a monthly government crop report.

German investor confidence reported by the ZEW Center dropped for an eighth month as the crisis in Ukraine and a sluggish euro-area recovery damped the outlook for Europe’s largest economy. A Russian humanitarian mission was headed toward eastern Ukraine after the U.S. warned President Vladimir Putin not to use aid as a cover to send in troops.

“The poor ZEW data is bad news for the euro,” said Peter Rosenstreich, chief foreign-exchange analyst at Swissquote Bank SA in Gland, Switzerland. “We know about the economic weakness in peripheral countries like Italy, but there’s always hope that Germany will be a growth engine that supports the region. Now the growth engine itself seems to be sputtering.”

The ZEW index of investor and analyst expectations, which aims to predict economic developments six months in advance, dropped to 8.6 in August from 27.1 in July. Economists forecast a decrease to 17, according to the median of 31 estimates in a Bloomberg News survey. The gauge has slipped every month since reaching a seven-year high in December.
 

Geopolitical Crises
 

The S&P 500 rose 1.4% in the past two trading days, the benchmark’s first back-to-back gain in two weeks, on optimism that tension between Russia and Ukraine will ease and American airstrikes will push back militants in Iraq.

The dollar (NYBOT:DXU14) rose against all but four of its 16 major counterparts. It appreciated 0.2% to $1.3357 per euro and was little changed at 102.17 yen. New Zealand’s dollar slid to its weakest level since June 4, falling as much as 0.6% to 84.09 U.S. cents, after a report showed annual home-price gains last month were the least since September 2012.

Treasury 10-year yields were at 2.43%. The rate on similar-maturity German bunds were little changed at 1.05%. Yields on Italy’s 10-year bonds dropped three basis points and Spain’s rate fell four basis points.

Bill Gross cut holdings of Treasuries and related debt in the world’s biggest bond fund in July, a report showed yesterday, amid speculation the Federal Reserve will raise interest rates next year as the economy improves.
 

Treasury Holdings
 

Gross cut U.S. government-related debt in his $223 billion Total Return Fund at Pacific Investment Management Co. to 45% of assets last month from 47% in June, according to data on the company’s website. He increased non-U.S. developed debt to 17%, the most since December 2011, from 16%, the data showed.

The Micex Index of Russian shares rose 0.2%. Russia is “evidently” seeking a humanitarian pretext for moving troops into Ukraine, Polish Interior Minister Bartlomiej Sienkiewicz said in an interview on Polish Radio’s 1st Channel.

U.S. Secretary of State John Kerry said the U.S. was open to further sanctions against Russia as he reiterated the need for a full investigation into the shooting down of a Malaysian Airline System Bhd plane with 298 people on board last month.
 

Revenue Forecast
 

Pandora A/S rallied 7.6% after the Danish jeweler raised its revenue forecast for this year after reporting second-quarter earnings that exceeded analysts’ estimates.

Henkel AG, which makes Sellotape and Loctite glue, slid 5.6% after its chief executive officer said the crises in Ukraine and the Middle East will lead to slower earnings growth in the second half of the year.

China will release data on industrial production, fixed-asset investment and retail sales tomorrow. Factory output probably rose 9.2% from a year earlier while retail sales growth accelerated to 12.5% from 12.4% a month earlier, according to median estimates.

WTI crude dropped to $97.17 a barrel as the International Energy Agency cut its growth estimate for oil demand for this year and next.

Wheat futures retreated for a fourth day in Chicago on speculation that production will exceed government estimates in the U.S., the world’s top exporter.

The U.S. may harvest 2.015 billion bushels, more than the 1.992 billion bushels predicted by the U.S. Department of Agriculture last month, a Bloomberg News survey showed. The USDA is scheduled to update its forecast today. Corn (CBOT:ZCU14) futures declined 0.5%.

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