Europe Stocks Fall With Currencies as Greek Bonds Slide

Frankfurt (Oct 14)  European stocks extended losses into a sixth day as currencies across the continent slid against the dollar amid signs growth around the world is faltering. A decline in Greek bonds pushed yields to the highest since March and oil extended its slump.

The Stoxx Europe 600 Index tumbled 0.9 percent at 7:20 a.m. New York time, set for its longest retreat since November 2011. Sweden’s krona led declines as the franc, euro and pound all dropped more than 0.6 percent versus the greenback. Gilts, bunds and Treasuries rallied, while the selloff in Greek debt pushed 10-year yields above 7 percent. Brent crude declined 1.2 percent. Standard & Poor’s 500 Index futures rose 0.2 percent.

About $744 billion was erased from U.S. equities since Oct. 8 amid concern that a global slowdown will negate the benefits of the Federal Reserve keeping interest rates near zero for longer. Data today showed consumer prices in Sweden and Spain fell, U.K. inflation slowed to a five-year low, and the ZEW measure of German investor confidence decreased for a 10th month. JPMorgan Chase & Co. reported earnings that fell short of analyst estimates. Wells Fargo & Co., Citigroup Inc. and Johnson & Johnson present results today.

“The data is very one-sided, starting with U.K. inflation and followed up by ZEW, and alongside of this you have a good dose of risk-off accompanying the move with equities down again,” said Christoph Rieger, head of fixed-rate strategy at Commerzbank AG in Frankfurt. “Unless we really see a change in the inflation and macro dynamics, it’s hard to call an end to this.”

Stocks Slump

Europe’s Stoxx 600 fell to the lowest level since February as banks and oil and gas producers led declines in 17 of 19 industry groups. The gauge is almost 9 percent below the June 10 close, which was a six-year high.

Burberry Group Plc (BRBY) dropped 4.2 percent after the U.K.’s largest luxury-goods maker forecast downward pressure on profit margins. Michael Page International Plc plunged 11 percent as the recruitment consultant said full-year operating profit will be “modestly” below market estimates.

Iliad SA rallied 11 percent as it abandoned a plan to buy a majority stake in T-Mobile US Inc. after an improved bid was spurned by the wireless carrier’s owner Deutsche Telekom AG.

The volume of Stoxx 600 shares changing hands today was 28 percent greater than the 30-day average, according to data compiled by Bloomberg.

Currencies Slide

The euro fell 0.7 percent to $1.2657 after the ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations, which aims to predict economic developments six months in advance, slid to minus 3.6 in October, the first negative reading since November 2012.

The Swedish krona plunged 1.7 percent, the biggest drop since July, after a report showed deflation worsened in September, increasing bets the central bank will cut interest rates. The franc slid 0.6 percent and the Norwegian krone slumped 1.3 percent.

Sterling weakened 0.9 percent to $1.5945 as a report showed consumer prices increased 1.2 percent in September, held back by falling oil costs. The potential for the Bank of England to keep interest rates lower for longer boosted gilts, with 10-year yields dropping to 2.09 percent, the least since June 2013.

Bonds, Inflation

Most developed-nation government bonds rose as investors sought the safest assets amid speculation the slowing growth will deter central banks from raising interest rates and weaker inflation will preserve the payments on fixed-income assets.

Treasury 30-year yields fell as low as 2.94 percent, the least since May 2013. Ten-year note futures surged to an 11-month high, extending gains from yesterday, when trading in cash bonds was closed for a holiday. Germany’s 10-year bund yield dropped to a record 0.843 percent.

Stoking the gains is a collapse in inflation expectations. The U.K. 10-year break-even rate, the difference between yields on conventional gilts and index-linked debt, dropped to 2.6 percentage points today, the least since November 2012.

The euro-area five-year, five-year forward inflation-swap rate, a gauge of price-growth expectations monitored by European Central Bank policy makers, was at 1.80 percent, the lowest level since Bloomberg began collecting the data in 2004.

Tumbling oil prices threaten to further crimp inflation. West Texas Intermediate futures dropped as much as 1.3 percent in New York. Brent for November settlement fell as much as $1.30, or 1.5 percent, to $87.59 a barrel on the London-based ICE Futures Europe exchange, the lowest since December 2010.

Oil Consumption

Oil demand will expand at the slowest pace since 2009 this year as global economic growth weakens, the International Energy Agency said today. The adviser to governments also cut its estimates for 2015. Consumption will increase by about 650,000 barrels a day this year, the Paris-based agency said in its monthly market report. The reduction of 250,000 barrels a day from a previous estimate is the fourth in a row and means growth will be about half what it anticipated in June.

Greek 10-year bonds fell for a second day and the nation’s stock index tumbled to the lowest in more than a year after euro-area finance ministers clashed with the nation’s leaders over their desire to sever a bailout program. Ten-year yields climbed as much as 39 basis points to 7.09 percent.

Fighter Jets

The MSCI Emerging Markets Index slipped 0.1 percent, after climbing as much as 0.6 percent earlier. Benchmark gauges in Turkey, South Africa, Poland, Hungary and the Czech Republic declined. U.A.E. shares dropped with oil as Dubai’s DFM General Index lost 2.9 percent and Abu Dhabi’s ADX General Index retreated 1.1 percent.

The Borsa Istanbul 100 Index declined 1 percent and the lira weakened 0.5 percent. Turkish fighter jets bombed positions of the Kurdish militant group PKK for the first time since the government started peace talks with the rebels more than a year ago, Hurriyet newspaper reported.

The ruble weakened 0.8 percent against the dollar, extending declines in the past three months to 16 percent, the worst performance among more than 170 currencies tracked by Bloomberg worldwide. Russia shifted the ruble’s trading band for a seventh day yesterday as slumping oil increased pressure on the currency of the world’s biggest energy exporter. The Micex Index jumped 0.4 percent to a one-week high. Russia canceled an auction of ruble-denominated bonds scheduled for tomorrow.

U.S. Secretary of State John Kerry will hold talks with his Russian counterpart Sergei Lavrov in Paris today as President Vladimir Putin moves to avert further sanctions over the conflict in Ukraine.

Ukraine’s 2017 Eurobond rose for the first time in five days, sending the yield six basis points lower to 15.65 percent.

Futures on the S&P 500 suggest the gauge will rebound after a run of three straight declines. JPMorgan was little changed in early New York trading.

“There are people probably buying into a falling U.S. market,” Stuart Beavis, head of institutional equity derivatives at Vantage Capital Markets in Hong Kong, said by phone. “I’m not totally convinced U.S. equities have corrected enough. People are still worried about global growth.”

Source: Bloomberg