RuhRoh: Euro Weakens, Spanish Bonds Fall on Deficit Concerns; U.S. Futures Decline
By Stephen Kirkland
June 16 (Bloomberg) -- The euro weakened, snapping a two- day rally against the dollar, and the bonds of Spain, Portugal and Greece fell on concern Europe’s deficits will persist. U.S. index futures declined and European stocks pared gains.
The euro depreciated 0.3 percent to $1.2293 as of 11:20 a.m. in London. The extra yield investors demand to hold Spanish 10-year bonds instead of benchmark German bunds rose to the highest since the euro’s 1999 debut. Futures on the Standard & Poor’s 500 Index dropped 0.3 percent and the Stoxx Europe 600 Index added 0.2 percent. The MSCI Emerging Markets Index advanced for a seventh day, increasing 0.5 percent. Gold climbed to within 1.4 percent of the record.
Spanish Prime Minister Jose Luis Rodriguez Zapatero announces a labor-law overhaul today to tame one of Europe’s biggest budget deficits after unions called for a general strike in September, the first in eight years. Debt levels in Spain and Portugal may “snowball” in coming years and additional budget cuts are needed to meet deficit targets, the European Commission said in a May 26 draft document obtained by Bloomberg.
“Focus is back on Spain after a couple of days of news about global growth,” said Arne Lohmann Rasmussen, chief currency analyst with Danske Bank A/S in Copenhagen.
The euro dropped 0.5 percent against the Swiss franc, 0.2 percent the pound, and 0.1 percent compared with the yen. The 16-nation currency has weakened 14 percent this year against the dollar.
Spreads Widen
The difference in yield, or spread, between Spanish and German 10-year bunds, Europe’s benchmark government debt securities, widened to 219 basis points, from 206 basis points yesterday, according to Bloomberg generic data. The Portuguese- German spread increased 17 basis points to 295 basis points, and the Greek-German yield difference rose 10 basis points to 651 basis points.
Credit-default swaps on Spanish government debt rose 10 basis points to 256, compared with the record-high closing level of 275 basis points on May 6, according to CMA DataVision.
The European Union denied a report that the International Monetary Fund, the EU and the U.S. are putting together a 250 billion-euro ($307 billion) credit line for Spain.
The drop in U.S. futures indicated the S&P 500 may pare some of yesterday’s 2.4 percent rally that erased the index’s loss for the year. Output at factories, mines and utilities increased 0.9 percent in May, the biggest jump since January and the 10th gain in 11 months, according to the median estimate of 82 economists surveyed by Bloomberg News before the Federal Reserve’s report due at 9:15 a.m. in Washington. Other data may show wholesale prices and home construction declined last month.
BP ‘Recklessness’
In Europe, Daimler AG led automakers lower, retreating 2.2 percent in Frankfurt. Schroders Plc fell 2.3 percent in London as Citigroup Inc. recommended selling the shares.
BP Plc gained 1.1 percent, rebounding from its lowest level in 13 years. U.S. President Barack Obama vowed that the company will pay for all damage caused by its “recklessness” and that the government would commit to restoring the Gulf Coast.
The MSCI Asia Pacific Index rallied 1.1 percent to a four- week high. Toyota Motor Corp., a carmaker that gets about 28 percent of its sales from North America, gained 1.2 percent in Tokyo. Nintendo Co. jumped 5.2 percent in Osaka, Japan, after the company introduced a new handheld video-game player. Markets in Hong Kong, China and Taiwan were closed today for a holiday.
The MSCI emerging index extended its longest stretch of gains in two months as benchmark equity gauges in every major developing nation open for trading today except Morocco rose. Romania’s BET Index jumped 1.9 percent, the most worldwide, and the country’s government bonds rallied after Prime Minister Emil Boc survived a no-confidence vote. South Korea’s won led gains in emerging-market currencies, strengthening 1.4 percent against the dollar.
Gold, Oil
Gold climbed 0.1 percent to $1,235.20 an ounce, compared with a record $1,252.11 on June 8. Copper increased 0.1 percent to $6,688 a metric ton on the London Metal Exchange, the seventh consecutive advance. Crude oil for July delivery on the New York Mercantile Exchange dropped 0.4 percent to $76.66 a barrel.
To contact the reporters on this story: Stephen Kirkland in London at skirkland@bloomberg.net;
_______________________________________________________
If you take anything I say as advice, you're crazier than I am.
