Oil Rebounds From Biggest Drop in Two Weeks on Norwegian Strike

Oil rebounded in New York on speculation the biggest drop in two weeks was excessive as Norway faced a shutdown of its production platforms because of an energy strike.
Futures advanced as much as 0.7 percent after falling 3.2 percent on July 6, the biggest decline since June 21. A planned lockout of workers on Norwegian oil platforms will go ahead as planned at midnight unless a solution is found today, according to Bengt Eidem, a spokesman for the Norwegian Oil Industry Association. Prices slid last week after a report showed the U.S., the world’s biggest crude user, created fewer jobs than estimated in June.
“I don’t think upward momentum will be that powerful or sustained,” Jarmo Kotilaine, the chief economist at Jeddah- based National Commercial Bank who forecasts Brent crude will trade in a range of $90 to $110 a barrel, said by telephone yesterday. “Norway is an issue.”
West Texas Intermediate oil for August delivery climbed as much as 60 cents to $85.05 a barrel in electronic trading on the New York Mercantile Exchange and was at $84.98 at 3:11 p.m. Singapore time. The contract slid $2.77 on July 6 to close at $84.45, the lowest settlement since July 2. Prices are down 14 percent this year.
Brent crude for August gained 95 cents, or 1 percent, to $99.14 a barrel on the London-based ICE Futures Europe exchange. The European benchmark’s premium to WTI was at $14.16, from $13.74 on July 6.

Technical Support

Oil in New York has technical support along the middle Bollinger Band on the daily chart, at around $83.80 a barrel today, according to data compiled by Bloomberg. Futures halted their decline July 6 near that indicator. Buy orders tend to be clustered near chart-support levels.
Norway’s strike, which started June 24, is disrupting as much as 250,000 barrels of oil output a day, according to Statoil ASA (STL), the nation’s largest energy company. The lockout would lead to a shutdown of all oil and gas production, Eidem said by mobile phone today. Talks in Oslo supervised by a state mediator failed yesterday. Norway is western Europe’s biggest crude exporter.
Three Libyan oil ports resumed export operations after a halt because of protests, according to the chairman of state-run National Oil Corp. Demonstrators had occupied Ras Lanuf, Brega and Es-Sider to call attention to their claims of economic and political marginalization of the oil-rich eastern province of Cyrenaica, cutting crude exports by about 300,000 barrels a day, Nuri Berruien said yesterday in a phone interview from the capital, Tripoli. The country’s output will return to 1.5 million barrels a day within 24 hours, he said.

Economic Slowdown

U.S. payrolls rose by 80,000 workers in June, compared with a forecast of 100,000 in a Bloomberg News survey of economists, Labor Department data on July 6 showed. The International Monetary Fund will cut its world-growth estimate for this year, Managing Director Christine Lagarde said the same day.
The economy in China, the second-biggest oil consumer, faces “relatively large” downward pressure, Premier Wen Jiabao said, according to the official Xinhua News Agency yesterday. Japan’s machinery orders, an indicator of capital spending, fell 14.8 percent in May from the previous month, the Cabinet Office said in a report today. The decline is the biggest since comparable data were made available in 2005.

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S&P 500 Buy Ratings at High as Valuations Offset Profit Drop

The same securities analysts warning of the first decline in quarterly earnings since 2009 are also more bullish than ever on U.S. stocks.
A total of 247 companies in the Standard & Poor’s 500 Index (SPX) have more buy ratings than sells and holds, a record in Bloomberg data starting in 2000. Bullish recommendations have been expanding even as Wall Street firms cut their forecast for second-quarter net income in the U.S. to a decrease of 1.8 percent from a gain of 2 percent in April, more than 10,000 estimates compiled by Bloomberg show. Earnings season begins today with a report from Alcoa Inc. (AA)

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Boeing delivered 150 aircraft in the three months through June, positioning itself to meet a 2012 target. Photographer: Andrew Harrer/Bloomberg

Bears say rising equity volatility, declining profits and the approaching U.S. presidential election mean the 4.5 percent drop in the S&P 500 since April will continue. Bulls say analysts are advising clients to buy because earnings are still on track to reach a record this year and the index is trading 16 percent below its average valuation since the 1950s.
“My picks aren’t based on one quarter,” Howard Rubel, a New York-based equity analyst at Jefferies & Co., said in a July 5 phone interview. “It’s not always captured in a headline how many pieces of judgment one needs to incorporate into a stock recommendation, and a quarterly earnings report is only one item. You have to look at things over a period of time.”

Analyst Recommendations

Rubel, ranked by Bloomberg among the top five analysts in more than half the companies he covers, lowered his profit estimate for United Technologies Corp. (UTX) last month while maintaining a buy rating for the maker of Pratt & Whitney jet engines. The Hartford, Connecticut-based company has 21 analysts recommending clients purchase the shares, compared with four holds and no sells, data compiled by Bloomberg show. Since October, analysts have cut estimates for profit this year by 9.6 percent to $5.49 a share.
The last time earnings and share ratings diverged was the third quarter of 2009, when the S&P 500 was six months into a rally that lifted it more than 100 percent through April 2012. Analysts predicted a 23 percent drop in S&P 500 annual profit, while 205 companies in the index had more buy ratings than sells and holds. The June-to-August period that year was the index’s last quarter of negative earnings growth.
Yair Reiner, a New York-based analyst at Oppenheimer & Co. raised his rating on Boeing (BA) Co., the world’s largest maker of cargo aircraft, to outperform from market perform on June 24, while lowering his earnings forecast by 7 cents to $1.04 a share for the second quarter. The stock is up 2.4 percent since he increased his recommendation that day, beating the S&P 500.

Boeing Estimates

“Progress on production gave me a much higher level of confidence in my year estimates and the company,” Reiner said in a July 3 phone interview. “If they can provide incrementally good news on the profit front, investors should be more than willing to overlook blips in any one quarter.”
Boeing delivered 150 aircraft in the three months through June, positioning itself to meet a 2012 target, according to a statement last week. Profit next year is forecast to rise 23 percent, followed by a 16 percent increase in 2014, data compiled by Bloomberg show. The Chicago-based company has 28 analysts telling clients to buy the shares versus three holds and one sell and may report that second-quarter earnings fell 12 percent to $1.10 a share, analyst projections show.
Alcoa, the largest U.S. aluminum maker, is scheduled to report second-quarter earnings today. The New York-based company, the first in the Dow Jones Industrial Average to release results, may say per-share profit slumped 82 percent from a year ago, according to estimates compiled by Bloomberg. The S&P 500 fell 0.6 percent to 1,354.68 last week, after the biggest June rally since 1999. Futures on the index dropped 0.4 percent ay 8:25 a.m. in London today.

Recession Forecasts

Analysts are too bullish amid forecasts for a recession in Europe and unemployment in the U.S. that has exceeded 8 percent since February 2009, according to Wayne Lin at Legg Mason Inc.
S&P 500 companies have a total of 5,898 buy ratings, 9.4 times the number of sells, data compiled by Bloomberg show. A year ago, there were 8.4 buys for each sell. Total buy ratings for the S&P 500 have outnumbered sells by a factor of 9 since 2000, data compiled by Bloomberg show. Less than half the time, there have been more total buys than sells and holds.
“My expectation is that we are going to start to see that weakness flow through to corporate earnings,” Lin, a money manager at Baltimore-based Legg Mason, said in a July 3 phone interview. His firm oversees $627 billion. “There’s a risk to just jumping in just because stocks are cheap. They may be cheaper later.”

Presidential Vote

The U.S. equity benchmark has gained an average of 0.1 percent in third quarters before a presidential vote since 1945, the worst return of the year and down from an average increase of 2.2 percent between April and June, according to S&P.
This quarter is the first since 2009 that analysts project earnings in the U.S. equity gauge will contract after Europe’s debt crisis and slowing growth in China reduced overseas demand, data compiled by Bloomberg show. U.S. employers increased payrolls by 80,000 workers last month and the unemployment rate held at 8.2 percent, the Labor Department reported on July 6.
“The question will be, we know you had a soft quarter, how does the rest of your year look?” Michael Vogelzang, who oversees more than $2 billion as president and chief investment officer at Boston Advisors LLC, said in a July 3 phone interview. “We’ve seen disappointing earnings and stocks move up, because they’ve been discounted. I think we are there.”

Profit Growth

Profit growth for S&P 500 companies is forecast to resume in the second half of the year, boosting annual income to a record $107.05 a share. Since the end of 2009, the index’s median quarterly earnings growth has been 25 percent, data compiled by Bloomberg show. Freeport-McMoRan Copper & Gold Inc. (FCX), the world’s largest publicly traded copper producer, may say profit shrank 40 percent during the second quarter, based on analysts’ estimates compiled by Bloomberg. That would be the first drop since 2009 for the April-to-June period. The Phoenix-based company has 22 buy ratings versus three holds and no holds.
The economy in China, the world’s biggest consumer of copper, has slowed for the past five quarters and prices of the metal are down 21 percent during the past 12 months. Last week, the People’s Bank of China cut its key interest rate for the second time in a month and allowed banks to offer bigger discounts on their own lending costs.

Broadcom, Mattel

More than 35 analysts recommend buying Broadcom Corp. (BRCM) even as estimates show the maker of chips that help mobile devices connect to the Internet will have a 6.9 percent drop in earnings when it reports July 24. While that will be the first second- quarter drop since 2009 and profits will also fall in the July- to-September period, the fourth quarter will see a 23 percent increase, according to projections. Nine analysts have hold or sell ratings.
Time Warner Inc. (TWX), owner of Warner Bros. studios, has more than twice as many buy ratings as it does sells and holds, while analysts project second-quarter net income will slump 9 percent. Mattel Inc. (MAT), the world’s largest toymaker, will report a 23 percent decline on July 17, yet more analysts recommend owning the company than selling it.
Equity valuations are cheap enough to account for weaker profit growth, said Tim Holland of Tamro Capital Partners. The S&P 500 trades at 13.7 times reported earnings, 16 percent below the average since 1954, data compiled by Bloomberg show. Should companies meet annual profit projections, the index would be trading at a 21 percent discount to the historic mean.
“It’s not the start of a downward trend,” Holland, portfolio manager at Tamro, which oversees $1.75 billion said in a telephone interview from Alexandria, Virginia. “U.S. equities are attractive, the economy seems to be in very good shape relative to other markets. We are very constructive on U.S. stocks.”

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Emerging Stocks Drop Most in 2 Weeks on China Concerns

Emerging-market stocks fell the most in two weeks after Chinese Premier Wen Jiabao said the nation’s economy faces “relatively large” downward pressure, and as U.S. jobs data missed estimates.
HTC Corp. (2498), Asia’s second-largest smartphone maker, slid to a two-year low after profit declined. E Ink Holdings Inc. (8069) sank the most in seven months, leading technology companies to the steepest drop among 10 industry groups on the MSCI Emerging Markets Index (MXEF), after sales plunged. China Yurun Food Group Ltd. (1068), the nation’s second-largest meat-product supplier, tumbled 9.2 percent after chairman and founder Zhu Yicai left active management of the company.
The MSCI Emerging Markets Index lost 1 percent to 936.67 as of 3:26 p.m. in Hong Kong, falling for a fourth day. The measure is poised for the longest losing streak in more than a month. China’s Wen said the government will intensify fine-tuning of policies, the official Xinhua News Agency reported yesterday. The nation’s consumer-price inflation eased to a 29-month low in June, the National Bureau of Statistics said today in Beijing. American employers added fewer workers to payrolls than forecast in June, a July 6 report showed.
“The disappointing U.S. jobs data, which is key for consumption, and lower price gains in China all point to slowing growth,” Chu Moon Sung, a Seoul-based fund manager at Shinhan BNP Paribas Asset Management Co., which oversees about $28 billion, said by phone today. “It’s inevitable some developing countries that highly depend on exports will feel the pinch.”

China Stocks

The Hang Seng China Enterprises Index of Chinese companies listed in Hong Kong sank 2.4 percent, headed for its steepest decline since June 4, while the Shanghai Composite Index (SHCOMP) slid 2 percent to the lowest in six months. South Korea’s Kospi Index lost 1.2 percent.
The Philippine Stock Exchange Index dropped 1.8 percent, the sharpest loss since June 4. The Philippine peso weakened after government tightened rules on capital inflows.
The FTSE/JSE Africa All Share Index (JALSH) slid 0.5 percent in Johannesburg, heading for its first decline in five days. Benchmark indexes fell 0.5 percent in Hungary and 0.4 percent in Poland. The Micex Index gained 0.4 percent in Moscow, its first increase in three days, as oil prices rose.
The developing-nation gauge has advanced 2.4 percent this year, compared with a 3.7 percent gain in the MSCI World Index of developed nations. Shares in the emerging stocks gauge are trading at 10.2 times estimated earnings, compared with the MSCI World’s multiple of 12.2, data compiled by Bloomberg show.

Biggest Drag

All industry groups on the developing-markets index fell today, with industrial stocks the second-biggest decliners. Data showed Japan’s machinery orders fell 14.8 percent in May from a month ago, the biggest drop since comparable figures were made available in 2005.
China Shipping Container Lines Co. tumbled 7.1 percent in Hong Kong and Hyundai Engineering & Construction Co. lost 6.5 percent in Seoul. The two companies led declines in the gauge of industrial stocks in the MSCI Emerging Markets Index.
Samsung Electronics Co. (005930), the world’s largest maker of televisions and mobile phones, dropped 3 percent in Seoul, the biggest drag on the developing-nation index, amid concern that a global economic slowdown may crimp sales.
Angang Steel Co. slumped 4.7 percent in Hong Kong, pacing declines for steelmakers, after saying it expects to swing to a loss in the first half after prices plunged.

China Growth

Jiangxi Copper Co. and PetroChina Co. fell at least 3 percent in Hong Kong, leading a slump for material and energy producers, before a report later this week that may show economic growth slowed to 7.7 percent in the second quarter.
The People’s Bank of China lowered the benchmark one-year lending rate by 0.31 percentage point on July 5, the first reduction in borrowing costs since 2008.
Chinese economists’ forecasts for second-quarter growth are “too optimistic,” according to Lu Ting, China economist at Bank of America Corp.’s Merrill Lynch unit.
Bank of America estimates growth of 7.5 percent in the second quarter, though it may be as low as 7.3 percent to 7.4 percent, Lu said in a Bloomberg Television interview today from Hong Kong. He predicts two more interest-rate cuts by the end of this year and three more reductions in lenders’ reserve- requirement ratios.

China Yurun Tumbles

China Yurun Food Group plunged in Hong Kong to the lowest level since October 2006. The company appointed Chief Executive Officer Yu Zhangli as chairman and named Li Shibao as his replacement, the change coming less than 10 days after it rejected allegations of accounting irregularities and contaminated products as “groundless.”
Yu was named CEO in March after the company said first- quarter earnings suffered from a 2011 news report about illegal additives in some of its meat.
Zhu Yicai quit as an executive director and was appointed honorary chairman and senior adviser, Yurun said in a July 6 statement.
HTC retreated 5.6 percent in Taipei, the lowest close since March 2010, after saying second-quarter net income declined 58 percent from a year earlier to NT$7.4 billion ($247 million). That compares with the NT$7.59 billion average estimate of 13 analysts surveyed by Bloomberg after the company last month cut its profit guidance.

India, Vietnam

E Ink Holdings slumped 7 percent after the supplier to Amazon.com Inc.’s Kindle said June sales plunged 71 percent from a year earlier to NT$532.5 million.
The BSE India Sensitive Index dropped 0.9 percent, bound for the largest slide since June 18, as lower-than-average monsoon rains threaten the nation’s efforts to tame inflation and spur economic growth. The rupee weakened for a fourth day.
Vietnam’s VN Index declined 1.8 percent, the most in more than a month, after the government said economic growth may trail its forecast.

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Spain Braces for Renewed Austerity as Tax Take Hemorrhages

Spanish Prime Minister Mariano Rajoy may unveil a third austerity round within days as his six-month- old government tries to avoid a second bailout amid hemorrhaging tax receipts.
Rajoy said on July 2 that the time has come to “press the accelerator pedal” as his government attempts to bring down near record borrowing costs. Government officials have said they are considering raising taxes on gas and products that currently have a reduced rate, such as food, water, public transportation, hotels and restaurants.

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Mariano Rajoy, Spain's prime minister. Photographer: Jock Fistick/Bloomberg

Spain’s return to recession is undermining efforts to cut the euro area’s third-largest budget deficit as tax receipts shrivel. Ten-year bond yields climbed back above 7 percent today as European finance ministers meet to discuss the worsening debt crisis. Spain became the fourth euro-region country to seek a bailout in June to shore up banks burdened with bad loans.
“I have my doubts because it is very difficult to boost receipts amid austerity,” Antonio Javier Ramos Llanos, economy professor at Madrid’s Universidad Pontificia Comillas, said in an interview. “Citizens see they are paying more tax and public services cost more. That doesn’t incite them to spend at all.”

Tax Receipts

The yield on Spain’s benchmark 10-year bond rose to 7.06 percent at 10:00 a.m. in Madrid, from 6.954 percent on July 6, rising back above the 7 percent threshold that prompted full bailouts in Greece, Ireland and Portugal.
Undermining efforts to rein in the deficit, receipts dropped 1.5 percent during the first five months of the year as higher levies on income, electricity and tobacco failed to compensate for a 10 percent slump in value-added tax revenue. Spending rose 12 percent as the state bailed out regional governments and interest payments surged 32 percent.
Rajoy’s Socialist predecessor, Jose Luis Rodriguez Zapatero, saw tax income fall by 19 percent between 2007 and 2011 as the economy shrank, even as he added levies and scrapped rebates.
An option for Rajoy is to give up on a tax rebate for homeowners months after reversing the Socialists’ decision to scrap it. Tolls could also be introduced on roads and government officials aren’t ruling out cutting public wages or subsidies for the unemployed.

Tax Goals

Since 2008, Spain has systematically collected less tax than the government forecast. Zapatero scrapped a tax rebate and raised value-added tax and income tax for the richest, alongside cutting public wages, benefits for parents and freezing pensions.
“It will probably get worse,” said Rafael Pampillon, head of economic analysis at the Instituto Empresa business school in Madrid. “I don’t see companies generating more profits or families earning and spending more as unemployment grows and salaries become lower.”
The government wants to generate 4.3 percent more tax revenue this year than in 2011, or 167.8 billion euros. That compares with last year’s budget deficit of 95.5 billion euros and the 29 billion euros the country expects to pay this year in debt costs. The plan hinges on an additional 12.3 billion euros from taxes on income, profits, tobacco and legal procedures.

Jobless Youth

Still, the government predicts domestic demand, including spending by public administrations, will shrink 3.1 percent, more than four times the pace of last year. Spain’s unemployment rate, the highest in the European Union, increased to 24.6 percent in May. More than half of Spanish youth are jobless.
The International Monetary Fund forecasts output will shrink 1.8 percent this year. Exports, which the government is relying on to spur the economy, dropped in April for the first time since 2009.
Cash-strapped regions and town halls are now stepping up austerity as they seek to cut their deficits in half this year. In Madrid, the price of metro tickets has jumped 29 percent. Water prices are set to rise for the second time in six months and students will pay more to go to university.
Spain registered its first negative savings rate on record in the first quarter as households’ income fell 1.8 percent, the National Statistics Institute said July 4.

Hampering Investment

Increasing taxes may encourage tax evasion in Spain, which already has the lowest tax-to-gross domestic product ratio in the euro region, Pampillon said. Industry lobbies for businesses from hotels to bakers have protested the increase in VAT.

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Volatility Surges in S&P 500 With Volume Lowest in Decade

Volatility in the Standard & Poor’s 500 Index is returning to levels that drove valuations and stock volume down to rates not seen since at least 2003.
Average daily price changes in the benchmark gauge for American equities doubled to 1 percent in June, according to data compiled by Bloomberg. At the same time, U.S. trading has plunged to 6.8 billion shares a day and valuations are 16 percent below the five-decade mean. Reaching those levels in tandem is unprecedented in at least nine years, the data show.

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The S&P 500 rallied 2 percent to 1,362.16 last week, bringing the monthly return to 4 percent, the most for June since the gauge added 5.4 percent in 1999. Photographer: Scott Eells/Bloomberg

 

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June 27 (Bloomberg) -- Kyle Harrington, founder of Harrington Capital Management, and Edward Dempsey, chief investment officer at Pension Partners LLC, talk about the outlook for U.S. stocks, commodity markets and their investment strategies. They speak with Cory Johnson and Alix Steel on Bloomberg Television's "Taking Stock." (Source: Bloomberg)

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A trader works on the floor of the New York Stock Exchange in New York. Photographer: Michael Nagle/Bloomberg

Investors whipsawed by volatility that reached twice the 50-year average in 2011 have pulled about $300 billion from mutual funds since the bull market began three years ago. With the third quarter marking the worst S&P 500 returns in election years since World War II, bears say widening price swings will keep individuals from returning to the market. Bulls say their exodus helped pull stocks lower just before growth in earnings and the economy helped spur the biggest June rally since 1999.
“We still believe in the bull market,” Laszlo Birinyi, president of Birinyi Associates Inc., said in a June 29 phone interview from Westport, Connecticut. “I’m just telling people to turn the page to the investments, the things that you can really quantify and put your fingers on. Stick to what truly matters: the company fundamentals.”

European Deal

The S&P 500 rallied 2 percent to 1,362.16 last week, bringing the monthly return to 4 percent, the most for June since the gauge added 5.4 percent in 1999. European leaders agreed to relax conditions on emergency loans for Spanish banks and possible help for Italy, boosting stocks globally even as first-time claims for U.S. unemployment benefits were higher than economists forecast.
The gauge declined 9.9 percent from its high on April 2 through June 1 after climbing 12 percent in the first three months, the best start to a year since 1998. Shares in the S&P 500 are up 101 percent since March 2009, and remain 13 percent below the all-time high of 1,565.15 in October 2007. The index rose 0.1 percent to 1,363.42 at 9:36 a.m. New York time.
Mutual funds that invest in U.S. equities saw $1.8 billion in outflows for the week ending June 20 and $620 million in the previous period, according to data from the Washington-based Investment Company Institute. More than $190 billion has been taken out of American equity funds in the 13 months through May, while more than $200 billion has gone into bonds, the data show.

‘Frozen’ Investors

“A lot of investors are just frozen, unsure what to do, so they do nothing,” Howard Ward, who helps oversee $35 billion at Gamco Investors Inc. in Rye, New York, said June 26. “There are no raging bulls looking to leverage up on margin and risk their savings. Everyone is cautious, with some more so than others.”
Withdrawals are coming as swings in stocks from L-3 Communications Holdings Inc. (LLL) to Deere & Co. widen. The S&P 500 moved an average 1 percent each day in June, almost doubling from the previous five months, data compiled by Bloomberg show.
Volatility is rising toward its level in 2011, when price changes were 1.3 percent between April and the end of December, twice the five-decade average, according to data compiled by Bloomberg. Daily swings reached 4 percent in December 2008, data using 50-day moving averages compiled by Bloomberg show.
The flight from mutual funds helped lower daily volume for U.S. exchange-listed stocks to 6.8 billion shares in 2012, down 44 percent from its peak in October 2008, according to data compiled by Barclays Plc and Bloomberg.

Light Volume

Volume hasn’t been this light at the same time that valuations were below their historic average since at least 2003, when the data began. Of the 500 companies in the benchmark U.S. equity index, 262 of them saw June volume that fell from a year ago, Bloomberg data show.
“Investors are feeling the market as a roller coaster ride,” Nick Sargen, chief investment officer at Fort Washington Investment Advisors in Cincinnati, which oversees about $40 billion said June 27. “All those gains that got made in the first quarter got wiped out in a month’s time. There’s just too much uncertainty to be making decisions, and there’s the risk that they’re going to get whipsawed again.”
Widening stock swings are a reversal of the first quarter, when daily changes narrowed to 0.5 percent, the smallest since 1995, the data show. The decline from the previous year was the biggest reduction since 1934, according to Bloomberg data.

Equity Funds

Calmer stock markets attracted more money to mutual funds over the last decade. U.S. funds added $14.5 billion in the first quarter of 2007, when the average daily swing was 0.5 percent, data compiled by Bloomberg and ICI show.
More than $700 billion has been erased from American equity values since this year’s S&P 500 high of 1,419.04 on April 2, according to data compiled by Bloomberg. The retreat has trimmed the gauge’s 2012 advance to 8.3 percent from 13 percent.
Equities may be entering the worst period of the year, if history is any guide. The index has gained an average of 0.1 percent in third quarters before a presidential vote since 1945, the lowest return of the year, according to S&P. U.S. shares gained 5.7 percent in election years since World War II, the second-worst performance during executive branch terms.
“Most of the volatility is a lack of conviction on the part of the market,” Peter Sorrentino, a senior fund manager at Huntington Asset Advisors in Cincinnati, which oversees $14.7 billion of assets, said June 28. “It creates this element of fear because one sector is rocky one day and another sells off the next day. That dissuades people from committing any money.”

European Shares

European leaders dropped requirements that taxpayers get preferred creditor status on aid to Spain’s banks and opened the way to recapitalize lenders directly after a two-day summit last week. Two years of losses have pushed European stocks near the lowest valuations ever, as the Euro Stoxx 50 Index fell to 0.9 times book value, cheaper than any time except the week markets bottomed in March 2009, data compiled by Bloomberg show.
Eric Teal, at First Citizens Bancshares Inc., said the corporate earnings season will convince investors to come back to the market. New York-based Alcoa Inc., the country’s largest aluminum producer, is scheduled to be the first Dow Jones Industrial Average (INDU) company to report results, on July 9.
“The lower-return environment and less appetite for risk- taking is having a compounding negative effect on the stock market,” Teal, chief investment officer at First Citizens, which manages $4.5 billion in Raleigh, North Carolina, said June 26. “Second-quarter earnings and more policy initiatives in the coming months will provide relief.”

L-3, Life

L-3 Communications is down 15 percent in the past 12 months even as the company boosted its full-year profit forecast in April. The stock rose or fell 1.3 percent a day in June, up from 0.7 percent in the first five months of the year, data compiled by Bloomberg show. Daily trading in L-3, a maker of military communications and electronics equipment, fell 30 percent last month from the average in 2011.
Trading in Life Technologies Corp. (LIFE), the provider of gene- analysis tools based in Carlsbad, California, was 42 percent lower last month than a year ago. The stock fell 7.9 percent in the second quarter even after Life posted better-than-forecast earnings. Daily moves rose to 2 percent in June from 1.2 percent in the previous five months.

Deere Swings

Average swings in Deere (DE), the largest maker of agricultural equipment, surpassed last year’s level to 1.7 percent from 1 percent between January and May, according to Bloomberg data. Volume in the shares has decreased to 3.6 million shares a day this month, 24 percent below the 2011 average. The shares are down 1.9 percent in the past year, even after Moline, Illinois- based Deere reported better-than-estimated earnings for all four quarters of 2011.
S&P 500 earnings have exceeded analyst projections for three years even as the world’s largest economy expands at its slowest post-recession rate in six decades, Bloomberg data show. They are forecast to surpass $100 a share for the first time this year and to rise 13 percent in 2013 while economists say the U.S. will expand 2.2 percent in 2012 and 2.4 percent next.
Higher profits kept the price-to-earnings ratio at an average 13.8 in the first six months of 2012, 16 percent less than the 16.4 mean since 1954.
“That’s one of the favorable things that is going on, corporate earnings are coming through,” Byron Wien, vice chairman of Blackstone Advisory Partners LP, said in a June 26 interview with Ken Prewitt and Tom Keene in Bloomberg Radio’s “Bloomberg Surveillance.” “The market is cheap. The problem is investors don’t have any confidence in the future because they are so confused.”
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Euro Weakens Versus Yen, Dollar as Unemployment Rises

The euro fell, reversing its biggest gain versus the yen in more than 15 months, as a report showed unemployment in the 17 countries sharing the currency climbed to a record in May.
The common currency weakened against all except one of its 16 most-traded peers after jumping the most against the dollar in eight months on June 29 as regional leaders eased terms on loans to Spanish banks. The European Central Bank will probably lower the key interest rate a quarter-percentage point on July 5, a Bloomberg News survey showed. Mexico’s peso traded near its highest in a month after a presidential election.

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Japanese yen and U.S. dollar notes are arranged for a photograph in Tokyo. Photographer: Tomohiro Ohsumi/Bloomberg

 

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July 2 (Bloomberg) -- Kathleen Brooks, research director at Forex.com, a unit of online currency trading company Gain Capital Holdings Inc., talks about foreign-exchange markets. She speaks with Guy Johnson on Bloomberg Television's "The Pulse." (Source: Bloomberg)

 

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July 2 (Bloomberg) -- Derek Halpenny, European head of global currency-markets research at Bank of Tokyo-Mitsubishi UFJ Ltd., talks about European Central Bank interest rates and the outlook for the euro and dollar. He speaks with Linzie Janis on Bloomberg Television's "On the Move." (Source: Bloomberg)

“The data backdrop in Europe remains relatively challenging,” Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce in London, said in a telephone interview. “The unemployment number puts some pressure on the ECB and their response in terms of monetary- policy easing against the backdrop of a weak economic environment.”
The euro dropped 0.5 percent to 100.52 yen at 9:50 a.m. New York time after rising 2.2 percent on June 29, the steepest advance on a closing basis since March 2011. It fell 0.5 percent to $1.2599, after jumping 1.8 percent at the end of last week, the most since Oct. 27. The greenback was little changed at 79.78 yen.
The jobless rate in the euro area rose to 11.1 percent in May from 11 percent in April, the European Union’s statistics office in Luxembourg said today. That’s the highest since the data series started in 1995.

Mexican Election

Enrique Pena Nieto, a member of the Institutional Revolutionary Party, claimed victory in Mexico’s election on a pledge to boost economic growth and private investment. The party ruled the nation for more than 70 years until 2000. The peso fluctuated, trading little changed at 13.3615 per dollar after gaining 0.8 percent and falling 0.2 percent. It touched 13.2505, the strongest level since May 8.
Brazil’s real rose 0.8 percent to 1.9941 per dollar as yields on the country’s interest-rate futures contracts fell after economists covering the world’s sixth-largest economy cut their 2012 growth forecasts for an eighth consecutive week.
Australia’s dollar touched an almost two-month high on bets the central bank will leave interest rates on hold tomorrow.
The euro fell versus all of its major peers except the Danish krone. The ECB will lower its main refinancing rate to 0.75 percent at its meeting this week, according to a Bloomberg survey.
“We can’t buy the euro yet,” said Marito Ueda, senior managing director in Tokyo at FX Prime Corp. (8711), a currency-margin company. “The outlook for Europe’s economy is still bleak, and it still remains to be seen what economic measures will be undertaken there.”

Finn Opposition

The euro stayed weaker against the dollar after currency- bloc member Finland said it opposed granting the permanent European Stability Mechanism the ability to purchase bonds on the secondary market, a measure discussed at last week’s summit.
Officials “didn’t reach consensus on the issue,” according to a statement on the Helsinki-based government’s website today. “Finland was among the Members States to oppose bond buying from the secondary market.”
The euro jumped at the end of last week after euro-area leaders dropped the requirement that governments get preferred creditor status on crisis loans to Spain’s blighted banks. Lenders can also be recapitalized directly with European bailout funds rather than being channeled through governments, European Union President Herman Van Rompuy said after the two-day summit that ended June 29.

‘Bearish Case’

“While Friday’s developments have bought some time for the euro, the bearish case for the currency remains very much intact,” Gareth Berry, a foreign-exchange strategist at UBS AG in Singapore, wrote in a note today. UBS has reiterated its three-month target of $1.20 for the euro, Berry wrote.
Japan’s largest manufacturers expect the yen to trade at an average of 78.93 per dollar in the second half of this fiscal year, the Bank of Japan (8301)’s quarterly Tankan report showed today. They forecast 78.24 in a March survey.
Manufacturer sentiment rose to minus 1 in June from negative 4 in March, according to the report. The BOJ is scheduled to hold a two-day policy meeting starting July 11.

‘Pressure Off’

“On the face of it, the data should take some pressure off the BOJ to ease policy next week,” Sue Trinh, a senior currency strategist in Hong Kong at Royal Bank of Canada, wrote in a research note today about the Tankan.
The Reserve Bank of Australia will keep the overnight cash- rate target at 3.5 percent at tomorrow’s policy meeting, according to all 28 economists in a Bloomberg survey.
The Aussie gained 0.2 percent to $1.0257 and reached $1.0278, the strongest since May 4.
New Zealand’s dollar may rise to the highest in more than two months as its short-term momentum has a “bullish” bias, Niall O’Connor, a New York-based technical analyst at JPMorgan Chase & Co., wrote in a research note yesterday, referring to forecasts the currency will continue to appreciate.
The currency, nicknamed the kiwi, faces an “important” test at the level of 80.60 U.S. cents to 80.90, which sits on a downtrend line from the Feb. 29 high, the analyst wrote. Rising above that may take the kiwi toward April highs, O’Connor wrote.

More Pain

The South Pacific nation’s currency jumped as much as 2 percent on June 29 before trading 0.3 percent higher today at 80.38 U.S. cents. It touched 80.51 cents, the highest level since May 3.
Derivatives traders see at least a year of pain for the euro even after the currency surged the most in eight months following the approval by European Union leaders of measures aimed at making it easier for Spain and Italy to obtain aid.
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European Stocks Advance as Investors Eye ECB Decision

European stocks rose as investors bet central banks will add to measures unveiled by the region’s governments to contain the sovereign-debt crisis and data from China and Japan fueled optimism Asia will drive global growth.
Invensys Plc (ISYS) advanced 2.3 percent after a report said China South Locomotive & Rolling Stock Corp. may make an offer. Aviva Plc, the U.K.’s second-biggest insurer, jumped 3.8 percent after it named a new chairman. Rhoen Klinikum AG (RHK) slumped 9 percent after Fresenius SE failed in its 3.1 billion-euro bid to buy the company.

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Aviva Plc, the U.K.’s second-biggest insurer, jumped 3.7 percent after it named a new chairman. Photographer: Chris Ratcliffe/Bloomberg

The Stoxx Europe 600 Index (SXXP) climbed 1 percent to 253.62 at 3:04 p.m. in London. The gauge rallied 1.9 percent last week, trimming its second-quarter decline to 4.6 percent, as the region’s leaders eased repayment rules for Spanish banks and relaxed conditions for possible aid to Italy.
“Investors will focus on the European Central Bank decision this week,” said Guillaume Chaloin, a fund manager at Meeschaert Asset Management in Paris, which oversees $2.5 billion in assets. “There is a rotation toward cyclical stocks, such as oil and technology, with the idea that if we’ve found a solution to the debt problem, there will be less negative impact on industries sensitive to the economy.”
The volume of shares changing hands on Stoxx 600 companies was 30 percent more than the average of the last 30 days, data compiled by Bloomberg showed.
National benchmark indexes advanced in all of the 18 western European markets except Iceland. France’s CAC 40 climbed 1 percent and the U.K.’s FTSE 100 added 0.6 percent. Germany’s DAX increased 0.8 percent.

Interest Rates

The ECB and the Bank of England announce interest-rate decisions on July 5. ECB officials will lower their benchmark rate by 25 basis points to a record low 0.75 percent, according to the median forecast in a Bloomberg survey of 57 economists. Five predict a cut of 50 basis points and 12 foresee no change.
“There still seems to be some positivity left over from Friday’s European summit announcement on bank bailouts,” David Jones, chief market strategist at IG Index in London, wrote. “With interest-rate decisions expected this week from the ECB and the Bank of England, hopes may be raised about the prospect of further quantitative easing.”
Finland opposes the possibility that the permanent bailout fund, European Stability Mechanism, could purchase bonds on the secondary market, according to a statement on the official website today.
Home prices in China, Singapore and Australia rebounded as demand for property assets rose, boosted by low interest rates.

Asian Manufacturing

In China, the government’s Purchasing Managers’ Index fell to 50.2 in June from 50.4 in May, the Beijing-based National Bureau of Statistics and China Federation of Logistics and Purchasing reported yesterday. That beat the 49.9 median estimate in survey of 24 economists.
A separate PMI, compiled by HSBC Holdings Plc and Market Economics, posted a final reading of 48.2 in June compared with 48.4 in May, according to figures released today.
In Japan, large manufacturers became less pessimistic as declines in commodity prices aided profitability, boosting the outlook for the world’s third-biggest economy.
The quarterly Tankan index of sentiment was minus 1 in June from minus 4 in March, the Bank of Japan said today in Tokyo. The median estimate of 19 economists surveyed by Bloomberg News called for a reading of minus 4. A negative number means pessimists outnumber optimists.

U.S. Economy

Stocks pared some of their gains after a U.S. report showed the Institute for Supply Management’s factory index fell to 49.7 in June from 53.5 a month earlier. The median forecast of economists surveyed by Bloomberg News called for a decline to 52. Readings less than 50 signal contraction.
Elsewhere, France will seek to raise as much as 8.3 billion euros through the sale of three-, six- and 12-month bills.
Invensys, which makes software that runs the London Underground trains, gained 2.3 percent to 227.7 pence. China South Locomotive is in the early stages of planning a possible 2 billion-pound ($3.14 billion) takeover bid for the company, the Sunday Times reported, without saying where it got the information.
Aviva advanced 3.8 percent to 283 pence. John McFarlane is taking over the position of chairman from Colin M. Sharman, who is retiring, the company said.

Barclays Chairman

Barclays Plc (BARC) gained 3.7 percent to 168.8 pence after earlier falling as much as 3.8 percent. Chairman Marcus Agius resigned after the bank was fined a record 290 million pounds for trying to rig inter-bank lending rates. Agius, 65, will remain in post until his replacement is appointed. Michael Rake will become deputy chairman.
BNP Paribas SA (BNP), France’s largest bank, jumped 4.4 percent to 31.66 euros. CA Cheuvreux added the stock to its select list, upgrading its recommendation from outperform.
Credit Agricole SA (ACA) increased 7.5 percent to 3.73 euros, the highest since May 4. The lender is holding talks with brokers as it considers selling the unprofitable trading and research activities of its Cheuvreux unit, according to three people familiar with the plans. The stock rallied 8.7 percent on Friday.

Storebrand, Subsea

Storebrand ASA (STB) climbed 4.7 percent to 24.27 kroner as Norway plans changes to occupational pension-product rules that could boost the earnings prospects of the country’s second- largest insurer.
Subsea 7 SA (SUBC), an oilfield-services company, rallied 3.5 percent to 121.20 kroner. The company won a $400 million contract from BG Norge Ltd. for the development of the Knarr Field in the North Sea.
Rhoen Klinikum tumbled 9 percent to 17.18 euros after Fresenius’s bid to buy the hospital operator was foiled by rival Asklepios Kliniken GmbH, which took a 5 percent stake in Rhoen. About 84 percent of Rhoen Klinikum shares were tendered in the offer, Fresenius said after the market closed June 29. The 22.50-euro-a-share bid was contingent on garnering at least 90 percent of the stock.
Linde AG (LIN) fell 2.2 percent to 119.90 euros after agreeing to acquire Lincare Holdings Inc. for about $3.8 billion to add U.S. oxygen and respiratory therapy services delivered to the home.
Vestas Wind Systems A/S (VWS) fell 7.3 percent to 30.06 kroner. Sunday Times reported that the turbine maker is in talks with two banks about restructuring debts after drawing a 300 million- euro credit line. Mikkel Friis-Thomsen, a Vestas spokesman, declined to discuss details of the report.
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