Thursday, 12 January 2012

Euro Gains on Debt Auctions; Treasuries Fall, Stocks Fluctuate

By Michael P. Regan and Allison Bennett

Jan. 12 (Bloomberg) -- The euro rose as European Central Bank President Mario Draghi said he saw signs of stabilization in the region and yields decreased at debt auctions in Spain and Italy. U.S. stocks erased earlier losses, while Treasuries fell after a 30-year bond sale drew lower-than-average demand.

The euro added 1 percent to $1.2831 at 1:22 p.m. in New York and climbed versus 14 of 16 major peers. The Standard & Poor’s 500 Index fluctuated near a five-month high above 1,292 after slipping 0.5 percent earlier. Ten-year Treasury yields climbed two basis points to 1.93 percent. Copper and oil rose, while corn and wheat plunged on forecasts for larger stockpiles.

Spain sold 9.98 billion euros ($12.7 billion) of notes, compared with a target of as much as 5 billion euros, while the yield on Italy’s one-year bills fell to 2.735 percent. The auctions triggered optimism that Europe’s debt crisis was not worsening. The ECB’s Draghi said that while risks remain, the economy was showing signs of stabilization as the central bank kept its benchmark interest rate at 1 percent.

“Any good news for the euro zone could be a trigger for traders to cover their short positions,” said Mamoru Arai, foreign exchange manager at Mizuho Financial Group Inc. in New York. “The market focused on the fairly positive comments about the European economy from Draghi but I think they were well balanced. And there was the good auction from Spain.”
Euro Strengthens

The euro rebounded from near a 16-month low versus the dollar, also strengthening after industrial production in the euro area declined by less than economists forecast. Spanish two-year note yields fell below 3 percent for the first time since April 2011 and the extra yield investors demand to hold Italian 10-year bonds versus benchmark German bunds tightened 37 basis points.

“According to some recent survey indicators, there are tentative signs of stabilization of economic activity at low levels,” Draghi said at a press conference in Frankfurt. “Substantial downside risks to the economic outlook for the euro area continue to exist in an environment of high uncertainty.”

Among U.S. stocks, Chevron Corp. slid 2.2 percent to lead energy shares to the biggest decline among 10 groups. Chevron said fourth-quarter profit was “significantly below” the previous period’s after maintenance at a California refinery and the sale of a U.K. fuel plant hurt results.

Financial shares in the S&P 500 lost 0.6 percent as Bank of America Corp. and JPMorgan Chase & Co. retreated. The group of 81 banks, insurers and investment firms has surged 22 percent from a two-year low on Oct. 3 amid increasing optimism on the economy. The S&P 500 has rallied 17 percent over the same period.
Economic Data
Retailers slipped 0.3 percent as a group, with Sears Holdings Corp. dropping 3.5 percent to lead declines. U.S. retail sales rose 0.1 percent in December, less than the 0.3 percent increase predicted in a Bloomberg survey of economists. Jobless claims climbed by 24,000 to 399,000 in the week ended Jan. 7, compared with a median estimate of 375,000 in a Bloomberg survey.

European financial shares advanced. Royal Bank of Scotland Group Plc jumped 5.6 percent as Britain’s biggest government- owned lender said it will cut 4,800 jobs. ING Groep NV, the largest Dutch financial-services company, advanced 3.7 percent after saying it will explore other options for the planned disposal of its Asian insurance and investment-management businesses.

European Retailers Plunge

A gauge of European retailers had the biggest drop on a closing basis since October 2008. Tesco Plc plummeted 16 percent, the most since at least 1988, after the U.K.’s largest supermarket chain reported Christmas sales that missed analyst estimates and reined back profit expectations. Delhaize Group SA, the owner of the U.S. Food Lion supermarkets, sank 11 percent in Brussels after also reporting sales that trailed projections.

The MSCI Emerging Markets Index gained 0.7 percent, headed for the highest close since Dec. 7. Benchmark gauges in Poland, Turkey and Hungary climbed at least 1.5 percent. The BSE India Sensitive Index fell 0.9 percent as Infosys Ltd. cut its full- year forecast for sales in dollar terms.

The Hungarian forint jumped 1.9 percent against the U.S. dollar after the government sold more bonds than planned and financing costs fell at an auction today.
Spanish Yields

The yield on Spain’s two-year note dropped for the fourth straight day, sliding 13 basis points to 2.96 percent. Italy’s 10-year yield sank 35 basis points to 6.63 percent. The yield on the French 10-year bond dropped 12 basis points to 3.04 percent, narrowing the difference in yield with bunds by 14 basis points to 120 basis points.

The yield on the existing 30-year U.S. Treasury bond increased two basis points to 2.98 percent.

The $13 billion in securities in today’s auction were sold at a yield of 2.985 percent, compared with the record low of 2.925 percent reached at the December sale and lower than the average forecast of 2.953 percent in a Bloomberg survey today of 21 primary dealers. The offering’s bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 2.6, versus an average of 2.7 in the previous 10 auctions.

Copper jumped 2.8 percent to lead gains among 12 of 24 commodities in the S&P GSCI index, which rose 0.2 percent. China, the biggest buyer of the metal, reported inflation slowed to a 15-month low in December. Natural gas dropped as much as 3.7 percent to $2.67 per million British thermal units, the lowest price since September 2009, amid forecasts for milder weather.

Corn, soybean and wheat prices plunged the most in three months after the U.S. forecast bigger inventories than analysts expected, easing concern that shortages will inflate prices for food and biofuels. Corn tumbled the 40-cent limit in Chicago, soybeans plunged 3.1 percent and wheat slid 6.5 percent.

--With assistance from Stephen Kirkland in London, Lynn Thomasson in Hong Kong and Charlie Zuza, Rita Nazareth and Susanne Walker in New York. Editors: Michael P. Regan, Jeff Sutherland

To contact the reporters on this story: Michael P. Regan in New York at; 
Allison Bennett in New York at

To contact the editor responsible for this story: Michael P. Regan at