German Bunds Fall as Commodities Rise; Europe Stocks Drop

Posted on January 2, 2014 · Posted in Latest News

German bunds fell, sending the 10-year yield to a more than three-month high, as gold and copper led gains in commodities. European stocks declined and emerging-market shares dropped the most in three weeks after Chinese manufacturing slowed.

The 10-year bund yield climbed three basis points to 1.96 percent at 6:15 a.m. in New York, while the rate on similar-maturity Italian bonds slid to the lowest since May. Gold jumped 1.5 percent after slumping 28 percent last year and copper climbed to the highest in almost seven months. The Stoxx Europe 600 Index slid 0.4 percent and the MSCI Emerging Markets Index retreated 0.8 percent. Standard & Poor’s 500 Index futures lost 0.2 percent after the gauge closed at an all-time high on Dec. 31. Turkey’s lira weakened to a record per dollar.

Reports today confirmed factory output in the euro area expanded last month at the fastest pace since May 2011 as German output grew for a sixth month, while the official Chinese index dropped more than estimated in December. In the U.S., the Institute for Supply Management’s manufacturing index slipped in December from its highest level in more than two years and initial jobless claims rose last week, economists said before reports today.

“We’ve had some good data in Europe,” said Owen Callan, an analyst at Danske Bank A/S in Dublin. “That’s supported a general risk-on theme in fixed income. People are starting the new year with a bit more firepower and are able to get onto some risk-on trades.”

Italy Bonds

Italian 10-year yields dropped 13 basis points to 3.996 percent, the lowest since May 23, while the rate on two-year Spanish notes fell to 1.234 percent, the least since Bloomberg started tracking the data in 1993.

The rate on U.S. 10-year Treasuries (USGG10YR) was at 3.03 percent, after touching 3.05 percent, the most since July 2011. The yield on similar-maturity U.K. gilts climbed three basis points to 3.05 percent.

The dollar strengthened to $1.3735 per euro after closing at $1.3743 on Dec. 31. It was at 105.37 yen, from 105.31 on Dec. 31. Japan’s currency traded at 144.72 per euro from 144.73 at the end of last year.

The S&P GSCI gauge of 24 commodities advanced 0.3 percent, after falling 2.2 percent last year, the first decline since 2008. Gold rose to $1,219.16 an ounce and copper increased to $7,434 a metric ton. West Texas Intermediate oil gained 0.4 percent to $98.81 a barrel.

The Stoxx 600 fell after earlier rising as much as 0.3 percent. The index climbed 17 percent in 2013, its largest annual gain since 2009. It reached its highest level since May 2008 on Dec. 31.

Fiat Acquisition

Fiat SpA (F) shares surged 13 percent after the carmaker agreed to buy the remaining stake in Chrysler Group LLC that it doesn’t already own. Exor SpA, its biggest shareholder, jumped 5.7 percent. Debenhams Plc climbed 2 percent after the retailer’s chief financial officer resigned. The stock slumped 12 percent on Dec. 31 after the company said profit will drop in the first half of the financial year.

Ophir Energy Plc lost 6.8 percent after the U.K oil and gas explorer said it didn’t find hydrocarbons at a well in Tanzania. CGG SA slipped 2.2 percent after UBS AG lowered its rating on the surveyor of oilfields.

The S&P 500 (SPX) rallied 30 percent in 2013, the biggest annual jump since 1997, to close at an all-time high of 1,848.36 on Dec. 31.

The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong dropped 1 percent, the biggest loss since Dec. 20. Data yesterday showed China’s official Purchasing Managers’ Index slipped to a four-month low in December, while a private report today also signaled manufacturing grew at a slower pace.

Weak Start

“The weaker PMI probably heralds a weak start of economic growth this year as China is still finding a new growth model,” said Wang Zheng, the Shanghai-based chief investment officer at Jingxi Investment Management Co. “The weaker economy will hold back stocks and makes stock picks more difficult this year.”

China’s President Xi Jinping said in his first New Year’s address that the world’s second-largest economy must press ahead with reforms this year to bolster people’s livelihoods and make the country “rich and strong.”

Turkey’s lira slipped as much as 1.4 percent to 2.1778 per dollar and the benchmark stock index slid 2.9 percent. The currency tumbled last month the most since September 2011 as a corruption probe embroiled Prime Minister Recep Tayyip Erdogan’s cabinet and led three ministers to quit.

Thai Protests

Thailand’s SET Index (SET) slumped 5.2 percent, the most since September 2011. Groups opposed to caretaker Prime Minister Yingluck Shinawatra plan to surround government ministries and occupy 20 major intersections in Bangkok on Jan. 13 until she agrees to step down and allow an unelected council to reform the country’s electoral system, Suthep Thaugsuban, a former opposition lawmaker who is leading the movement, said yesterday.

South Korea’s Kospi (KOSPI) index tumbled 2.2 percent, the steepest decline since July 12, 2012, as Hyundai Motor Co. and Kia Motors Corp. forecast their weakest sales growth in eight years.

The cost of insuring against losses on corporate bonds was little changed, with the Markit iTraxx Europe Index of credit-default swaps on 125 investment-grade companies at 70 basis points. The gauge dropped 47 basis points last year, following a 56-basis point decline in 2012.