BackUS stocks fluctuate with Europe equities amid Espirito Santo bailout
The S&P 500 Index increased 0.1% in New York after tumbling 2.7% last week
Premium
London/New York: The Standard & Poor’s 500 Index fluctuated, after the worst week in more than two years, while European equities erased gains. Euro area bonds advanced after Portugal announced a bailout for Banco Espirito Santo SA.
The S&P 500 increased 0.1% at 10:17 am in New York after tumbling 2.7% last week. Portuguese 10-year yields slid eight basis points to 3.62% while the Stoxx Europe 600 Index was little changed. Shares in Shanghai climbed to the highest close this year and Asian currencies strengthened. The euro traded at almost its lowest level versus the dollar since November. Commodities rebounded after a four-day decline.
About $1.2 trillion was wiped from the value of global equities last week amid concern that a default by Argentina and the crisis at Espirito Santo would constrict credit markets as the Federal Reserve debates the timeline for interest rate increases. Espirito Santo will get €4.9 billion ($6.6 billion), Portugal’s central bank said. Warren Buffett’s Berkshire Hathaway Inc. rose 1.4% after earnings topped estimates.
“We’re seeing a reprieve of geopolitical concerns, which is modestly emboldening risk-taking for today," Chad Morganlander, a money manager at St. Louis-based Stifel, Nicolaus & Co., which oversees about $160 billion, said in a phone interview. “The economy overall is moving forward with better-than-expected earnings, and we see an upward bias continuing over the next couple of months."
Portugal’s central bank now controls Espirito Santo, easing concern that the lender’s woes may spread. Most of its assets will be moved into a new company, Novo Banco. The lender’s shareholders and junior bondholders will be left with the most problematic loans, including those to other parts of the Espirito Santo Group, the central bank said in a statement on Sunday.
Idiosyncratic Event
Spanish and Italian government bonds rallied with Portuguese securities. Spain’s 10-year yield fell seven basis points to 2.49%, approaching the record-low 2.45% set on 30 July. The rate on similar-maturity Italian debt dropped six basis points to 2.70%.
Treasury 10-year note yields slipped one basis point to 2.48%.
“We’re seeing this as an idiosyncratic event," Nicola Marinelli, who helps manage around $190 million of assets at Sturgeon Capital Ltd. in London, said in an interview on Bloomberg Television’s On The Move with Jonathan Ferro. “If it spreads then yes, we could see definitely a spillover into the government bonds of peripheral countries but that’s not the case so far. It’s actually going to be good."
The euro was little changed at $1.3422 after earlier touching its lowest level since 12 November. Europe’s common currency slid 3.2% in the past three months as the European Central Bank (ECB) cut interest rates to spur inflation that slowed in July to the weakest in almost five years. The ECB meets this week.
Fed Watch
The S&P 500 had its worst week since June 2012, as companies around the globe including Exxon Mobil Corp. posted disappointing results, Argentina defaulted and Espirito Santo was ordered to raise capital.
Concern has grown that the improving US economy may force the Fed to raise interest rates sooner than expected. Data last week showed the US gross domestic product (GDP) expanded at a 4% annual pace in the second quarter, confirming the Fed’s view that a first-quarter contraction was transitory. A separate report on 1 August showed employers in the US added more than 200,000 jobs for a sixth straight month in July, the longest such period since 1997.
Some 72 companies including Walt Disney Co. and Time Warner Inc. report earnings this week. Of the companies that have posted results so far this season, 76% beat earnings estimates and 65% exceeded sales projections, according to data compiled by Bloomberg.
Buffett Portfolio
Berkshire Hathaway Class B shares advanced as a rebounding US economy boosted the value of Berkshire’s stock portfolio and helped propel growth at the dozens of companies that Buffett, 83, acquired during his four-decade tenure as chairman and chief executive officer.
The MSCI Emerging Markets Index added 0.7%, advancing for the first time in four days. Chinese stocks rose amid speculation the government is accelerating its reform of state-owned enterprises.
The Shanghai Composite Index jumped 1.7% to the highest level since 10 December, while the Hang Seng China Enterprises Index of mainland companies listed in Hong Kong rallied 1%.
China Everbright Ltd. jumped 15% after saying its parent will become a joint-stock company in an ownership revamp of a group with $420 billion of assets from banking and broking to tourism.
The won climbed 0.3% to 1,033.55 per dollar after weakening 1.1% last week, the most since March. The ringgit gained 0.3% to 3.2020 a dollar on Monday. A gauge of 20 emerging-market currencies advanced for the first time in eight days.
The Bloomberg Commodity Index of 22 raw materials rose 0.5% as raw sugar jumped 1.5% after Reuters reported fires at two sugar warehouses in Brazil, the largest producer and exporter of the sweetener.
Wheat gained 2.1% on speculation demand will increase for US grain after rain damage to crops in Europe. Bloomberg
Yoshiaki Nohara in Tokyo, Emma O’Brien in Wellington, Claudia Carpenter, Paul Dobson, Will Hadfield, Lucy Meakin and Shelley Smith in London, Wes Goodman in Singapore and Nick Gentle in Hong Kong also contributed to this story.
Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!
