European stocks and U.S. index futures fell while the yen and the dollar rose on speculation a report today will show that America’s unemployment rate climbed to the highest level since 1983.
The MSCI World Index of 23 developed countries slipped 0.6 percent at 9:21 a.m. in London, while Standard & Poor’s 500 Index futures slipped 0.5 percent. The yen and the dollar strengthened 0.3 percent against the euro.
The U.S. jobless rate may have risen to 9.6 percent last month, economists surveyed by Bloomberg News said before today’s Labor Department report. That increase would suggest the $12.8 trillion pledged by the U.S. government and the Federal Reserve is doing little to shore up the labor market. The European Central Bank probably will keep borrowing costs at a record low to battle the recession, while Sweden’s Riksbank unexpectedly cut its benchmark rate to 0.25 percent today.
“People have become a little bit too optimistic,” Philippe Gijsels, a senior structured equity strategist at Fortis Global Markets in Brussels told Bloomberg Television. “People will be disappointed. Gradually over the summer and into the autumn we will move lower,” he said.
The Dow Jones Stoxx 600 Index of European shares slid 1.1 percent, trimming its rebound since March 9 to 31 percent. A gauge of automobile-related shares dropped 2.6 percent after European carmakers were downgraded to “market weight” from “overweight” by Zurich-based Credit Suisse Group AG.
Volkswagen, Daimler
Volkswagen AG, Europe’s largest carmaker, slid 3.7 percent. Sales at the Wolfsburg, Germany-based company’s American unit fell 18 percent last month. Stuttgart, Germany-based Daimler AG, the world’s second-biggest maker of luxury cars, sank 3.5 percent.
U.S. index futures slid before the jobs report, which economists estimate will also show that employers cut an additional 365,000 positions. The payroll projection for June would extend the employment slump since the recession began in December 2007 to 6.3 million, the biggest loss in the post-World War II era.
Lear Corp., the world’s second-largest maker of automotive seats, said yesterday it plans to file for Chapter 11 bankruptcy. The Southfield, Michigan-based supplier will seek protection after slumping auto production by customers such as Detroit- based General Motors Corp. reduced sales. More than 20 parts makers have filed for bankruptcy this year, according to the Original Equipment Suppliers Association trade group.
The MSCI Emerging Markets Index fell 0.3 percent, while Russia’s Micex Index retreated 2.2 percent, the biggest drop in a week.
ECB Decision
The euro declined against the dollar and the yen before today’s ECB meeting, at which policy makers may leave the benchmark interest rate at a record low 1 percent. Sweden’s krona dropped versus all 16 major currencies, losing 0.9 percent against the euro, after the Riksbank unexpectedly cut its main rate. The Swiss franc declined 0.2 percent against the euro after Swiss National Bank Governing Board member Thomas Jordan said policy makers remain ready to sell the currency to prevent appreciation.
Stocks and credit markets have rebounded as signs increased that the global economy and corporate profits are recovering after the collapse of subprime mortgages spurred almost $1.5 trillion in losses and writedowns at financial firms.
The Libor-OIS spread, which measures banks’ willingness to lend, has narrowed to 37 basis points, from a record 364 basis points reached in October following the collapse of New York based Lehman Brothers Holdings Inc.
U.S. Earnings
Analysts covering S&P 500 companies began to boost 2009 profit estimates for the first time this year in May as economists predicted the U.S. economy will start to expand this quarter, weekly data compiled by Bloomberg show.
Treasuries were little changed, with the 10-year yield at 3.54 percent, close to the highest level in a week, before the government announces today how much it plans to raise in four auctions starting July 6.
The cost of protecting European corporate bonds in the credit-default swaps market rose for the first time in a week, with the high-yield Markit iTraxx Crossover Index climbing 10 basis points to 713, according to JPMorgan Chase & Co. The index is a benchmark for the cost of protecting bonds against default and an increase signals a deterioration in perceptions of credit quality.
Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements. A basis point on a contract protecting 10 million euros ($14.1 million) of debt from default for five years is equivalent to 1,000 euros a year.
Source: bloomberg.com.
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