U.S. Stocks Fluctuate Amid Deals; Yen, Gold Advance

August 6, 2014

New York (Aug 6)  U.S. stocks fluctuated near a two-month low, as Sprint Corp. and Time Warner Inc. fell amid merger news to offset gains among commodity producers. Gold rallied with the yen as haven demand rose on concern that the Ukraine crisis will escalate.

The Standard & Poor’s 500 Index (SPX) slid 0.1 percent at 2:02 p.m. in New York. The gauge rose erased a gain of 0.4 percent and earlier sank 0.5 percent. The Stoxx Europe 600 Index dropped to a three-month low. The yield on 10-year Treasury notes fell two basis points to 2.46 percent. The yen rose the most in four months against the dollar and gold had its best gain in six weeks. Wheat added the most since April.

The S&P 500 traded near its average level for the past 100 days after yesterday dropping 1 percent to the lowest since May. Sprint slid 19 percent after it ended talks to acquire T-Mobile US Inc, while Time Warner tumbled 11 percent after 21st Century Fox Inc. withdrew its takeover bid. NATO said there’s a risk of Russia sending troops into Ukraine under the “pretext” of a humanitarian mission after President Vladimir Putin massed troops on his country’s western border.

“There’s going to be a lot of noise intraday going forward, but we still see the fundamental trend moving higher,” Sam Turner, a fund manager with Richmond, Virginia-based Riverfront Investment Group LLC, said in a phone interview. His firm oversees $4.6 billion. “There are geopolitical concerns in the backdrop. We might slip back to flush out the remaining weak hands, but we’re recommending buying this dip.”

  Photographer: Nelson Ching/Bloomberg

Energy, Mergers

The S&P 500 lost more than 3.5 percent since reaching a record of 1,987.98 on July 24 and came within about 70 points of erasing its gain for the year. The benchmark gauge tumbled 2.7 percent last week, the most since June 2012. It has added 3.9 percent in 2014.

Producers of consumer staples gained 0.7 percent, while commodity producers in the index added 0.5 percent for the biggest gains among 10 main groups. Molson Coors Brewing Co. jumped 6.2 percent for the steepest advance. Bank of America Corp. advanced 1.3 percent to lead bank shares higher after the Federal Reserve approved its resubmitted capital plan for 2014.

Phone and utility stocks sank at least 1.3 percent. Walgreen Co. retreated 13 percent as the biggest U.S. drugstore chain said it will buy the shares in Alliance Boots it doesn’t already hold, and won’t use the deal to move its tax address abroad.

Sidelines Cash

“There’s cash sitting on the sidelines looking for an opportunity to go back in,” Kevin Caron, who helps oversee $170 billion at Stifel Nicolaus & Co. in Florham Park, New Jersey, said in a phone interview. “It may just be that there are some value investors who are stepping in and starting to nibble here. The correction we’ve seen so far has been enough to get at least some investors’ attention.”

In Europe, the Stoxx 600 sank to its lowest level in more than three months as data showed that Italy unexpectedly returned to recession and German factory orders dropped the most since 2011 as slowing global growth and rising tensions over Ukraine threaten the euro area’s recovery.

NATO Deputy Secretary General Alexander Vershbow said that Russia has amassed about 20,000 troops along its border with eastern Ukraine. U.S. Defense Secretary Chuck Hagel told reporters in Germany today that the threat of a Russian incursion in Ukraine is a “reality.”

Putin is showing no sign of backing down over Ukraine, and said his government has proposed retaliatory measures after the U.S. and the European Union tightened sanctions last week.

Europe Equities

The Stoxx 600 fell 0.9 percent, paring its advance this year to 0.2 percent after earlier briefly erasing all of its 6.5 percent rally from the beginning of this year through its June 10 high.

Among stocks moving, Iliad SA (ILD) declined 5.7 percent after people familiar with the matter said T-Mobile US plans to reject the French company’s $15 billion bid to buy a controlling stake. Swiss Re AG slipped 3 percent after posting second-quarter earnings that missed analysts’ estimates.

“People are taking risk off as they go on holiday, bearing in mind that we’ve got big geopolitical events going on in the background,” Kevin Lilley, who helps manage the equivalent of $27 billion as head of European equities at Old Mutual Global Investors U.K. Ltd., said by telephone from London.

Italy’s 10-year government bonds fell for a second day as signs that the euro-area’s economic recovery is losing momentum damped demand for the region’s higher-yielding assets. German government bonds rose, pushing the 10-year yield to a record-low 1.103 percent.

Emerging Markets

The MSCI Emerging Markets Index fell 0.6 percent, headed for a five-week low. Russia’s Micex Index slipped 1.7 percent and the yield on 10-year Russian bonds rose 20 basis points to 9.90 percent, the highest since October 2009.

Russia yesterday called for a humanitarian mission to Eastern Ukraine, which is on the verge of a “catastrophe,” the Foreign Ministry in Moscow said on its website.

The mounting tensions in Ukraine spurred demand for haven assets, sending the yield on 10-year Treasury notes lower by two basis points to 2.46 percent. The rate earlier fell to the least since May.

“There is clearly a risk-off move,” said Vincent Chaigneau, global head of rates and foreign-exchange strategy at Societe Generale SA in Paris. “It’s mostly the stories about Ukraine and Russia. There is a little bit of stress everywhere in the global markets and this is benefiting Treasuries despite the strong data we had yesterday in the U.S.”

Gold futures jumped 1.9 percent to $1,309.80 in New York. The precious metal has rallied 6.9 percent this year through yesterday. Silver added 0.9 percent today.

The dollar rose to the strongest level in almost nine months versus the euro, advancing 0.2 percent to $1.3353. The U.S. currency declined 0.2 percent to 102.37 yen. The euro depreciated 0.4 percent to 136.69 yen.

Source: Bloomberg

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