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European Stocks, U.S. Futures, Oil Decline; Treasuries Advance
April 20 (Bloomberg) -- European stocks and U.S. index futures dropped, commodities retreated and Treasuries advanced on concern that earnings reports this week will show the global recession hasn’t eased.
Europe’s Dow Jones Stoxx 600 Index slipped 1.4 percent after a 4.7 percent rally last week. Futures on the Standard & Poor’s 500 Index fell 1 percent before earnings results today from Bank of America Corp. and International Business Machines Corp. The euro weakened for a fifth day against the dollar, trading below $1.30 for the first time since March 18, on speculation of a deepening split among the region’s central bankers over interest rate cuts.
Futures suggested the S&P 500 will decline after its steepest six-week rally since 1938. Analysts estimate profits at S&P 500 companies decreased for the seventh straight quarter in the January to March period, the longest stretch since at least the Great Depression.
“We believe an historic drop in stock prices is inevitable,” Carl B. Weinberg, chief economist at High Frequency Economics in Valhalla, New York, wrote in a report dated today. “We expect both falling inflation and a huge sell- off of equities as first-quarter earnings reports hit the wires to keep bond prices rising.”
U.S. Treasuries rose for the first time in three days, led by 10-year notes, before a report from the New York-based Conference Board that is likely to show an index of leading indicators fell for a second month, according to a Bloomberg survey of 40 analysts. The economic recovery this year will be “anemic,” New York-based Goldman Sachs Group Inc. said in a report April 17. The yield on the benchmark 10-year note fell six basis points to 2.90 percent.
Oil, Metals
Crude oil for May delivery fell below $50 a barrel on the New York Mercantile Exchange, after sliding 3.7 percent last week, as slowing economies reduced demand for fuels. Copper for delivery in three months dropped 1.8 percent to $4,720 a metric ton on the London Metal Exchange. Aluminum and nickel slipped.
The euro weakened after European Central Bank Executive Board member Lorenzo Bini Smaghi was cited by the Financial Times Deutschland as saying the main refinancing rate of 1.25 percent is “very close” to its floor. At least two council members last week said they may support a rate under 1 percent.
The euro declined to $1.2984, from $1.3044 last week. The 16-nation currency also weakened to 128.50 yen, from 129.33.
The pound tumbled to the lowest level in seven days against the dollar as the Confederation of British Industry urged Chancellor of the Exchequer Alistair Darling to hold back on further spending measures in his April 22 budget statement as government debt piles up.
The British currency fell to $1.4614, from $1.4797 last week, and traded at 88.89 pence per euro, from 88.22 pence.
U.S. Earnings
In the U.S., Charlotte, North Carolina-based Bank of America is scheduled to report results before the open of regular U.S. trading. Armonk, New York-based IBM will announce after the close. Houston-based Halliburton Co. and Indianapolis- based Eli Lilly & Co. will also post quarterly earnings.
The S&P 500 has rebounded 29 percent since March 9 as the biggest U.S. lenders said they made money at the beginning of 2009 and investors speculated the U.S. government’s plan to purchase as much as $1 trillion in unprofitable assets from banks will help pull the global economy out of its first recession since World War II.
So far, first-quarter incomes have fallen less than forecast. A total of 66 percent of the S&P 500 companies that announced results since the earnings season began two weeks ago beat Wall Street projections, data compiled by Bloomberg show.
‘Severe Shock’
The global stocks rally that lifted the MSCI World Index 27 percent from its March 9 low is likely to falter as the slowdown dents earnings, according to State Street Global Advisors Inc. Profits at S&P 500 companies dropped 38 percent in the first quarter and may slide 32 percent in the second, according to analysts’ estimates compiled by Bloomberg.
“We’re likely to see a pullback in stock markets as earnings disappoint,” said George Hoguet, global investment strategist at Boston-based State Street, which oversees $1.4 trillion. “We are undergoing a severe shock and the global economy will take several quarters to get back to trend growth.”
Nouriel Roubini, the New York University professor who predicted the financial crisis, said in Hong Kong that he was “still bearish” and earnings will “surprise on the downside.”
China, Russia
China’s Shanghai Composite Index climbed to the highest in eight months after Premier Wen Jiabao said a stimulus plan has shown “better-than-expected” results. Russia’s Micex Index retreated from a six-month high following oil’s drop to $49.12 in electronic trading in New York.
The cost of protecting European corporate bonds from default rose, signaling an increased perception of credit risk.
Contracts on the Markit iTraxx Crossover Index of 45 companies with mostly high-risk, high-yield credit ratings increased 5 basis points to 831, according to JPMorgan Chase & Co. prices at 9:06 a.m. in London. The Markit iTraxx Europe index of 125 companies with investment-grade ratings rose 1.5 basis points to 150.5, JPMorgan prices show. The Markit iTraxx Financial index of 25 European banks and insurers increased 4 basis points to 153 and the subordinated index climbed 8 to 270.
Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements.
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