Markets extend worst month since May 2012 as Syria looms

U.S. stocks extended the worst monthly drop since May 2012 as investors weighed a smaller-than- forecast increase in consumer spending and prospects for military action against Syria. European shares dropped and Portuguese bond yields surged amid concern the nation will struggle to meet its deficit target.

The Standard & Poor’s 500 Index lost 0.2 percent to 1,634.57 at 10:14 a.m. in New York to extend its loss for August to more than 3 percent. The Stoxx Europe 600 Index retreated 0.9 percent and the MSCI Emerging Markets Index gained 0.7 percent. Portuguese yields jumped to a five-week high. Ten-year Treasury yields were little changed at 2.76 percent, with the benchmark note poised for a fourth month of losses. West Texas Intermediate oil slipped 0.4 percent to $108.35 a barrel as silver and gold retreated. The yen strengthened against most of its 16 major peers.

Concern that conflict with Syria will disrupt Middle East oil supplies eased as U.K. Prime Minister David Cameron failed to gain parliamentary backing for military action. U.S. consumer spending increased for a third month in July, a Commerce Department report showed. In Portugal, the Constitutional Court said late yesterday that it opposed a plan to end labor contracts for some state employees.

“If you are a creditor of Portugal, that news doesn’t sound very good,” said Luca Jellinek, head of European rate strategy at Credit Agricole Corporate & Investment Bank in London. “It’s the third time the court turns down budget-saving measures. But I don’t think ultimately it’s going to derail what’s going on in Portugal. It just makes it less efficient and harder to slim down the state.”

Commodities Outperform

Commodities outperformed stocks and bonds this month. The S&P GSCI gauge of 24 raw materials rose 3.4 percent in August, while the MSCI All-Country World Index of equities declined 2 percent and the BofA Merrill Lynch Global Broad Market Index of debt fell 0.4 percent.

The S&P GSCI dropped 0.5 percent as silver declined to $23.46 an ounce. Gold retreated to $1,394.48 an ounce, narrowing this month’s gain to 5.2 percent.

Among U.S. stocks moving today, Salesforce.com Inc jumped in early trading as the provider of customer-management software announced sales and profit forecasts that beat analysts’ projections. Krispy Kreme Doughnuts Inc. tumbled after reporting second-quarter earnings that trailed analysts’ estimates as costs increased.

European oil producers led losses in the Stoxx 600 as BP Plc, Royal Dutch Shell Plc and Total SA lost at least 0.9 percent. Royal KPN NV slid 6.4 percent after America Movil SAB said it may withdraw its bid for the Dutch phone company. Late yesterday, KPN’s foundation said it had exercised an option to buy preferred shares, giving it almost 50 percent of issued and voting stock in the telecommunications operator.

Portugal’s Debt

Portuguese bonds declined after a court found that a proposed plan to end labor contracts for some state workers was unconstitutional, raising concern the government will struggle to meet its deficit targets. The yield on 10-year Portuguese securities climbed 19 basis points 6.77 percent, its highest level since July 22.

European corporate bonds lost 0.2 percent in August, the fourth month of declines in a year that has so far generated the worst return since 2008. Investment-grade debt in euros has returned 0.8 percent this year compared with 9 percent in the same period of 2012, Bank of America Merrill Lynch index data show.

The cost of insuring against losses on company debt rose today, with the Markit iTraxx Europe index of credit-default swaps on 125 high-grade borrowers increasing 1.4 basis points to 106.2.

Emerging Markets

The MSCI Emerging Markets Index climbed 0.9 percent, extending its two-day gain to more than 2 percent, the biggest in more than a month. The gauge has still fallen 2 percent in August.

The SET Index in Thailand increased 0.1 percent, paring its retreat this month to 9.1 percent.

The Indian rupee strengthened 1.3 percent to 65.71 per dollar after earlier weakening as much as 1.3 percent. Economic growth probably fell to 4.7 percent in the second quarter from 5.4 percent a year earlier, according to the median estimate of 44 economists in a Bloomberg survey. Indian Prime Minister Manmohan Singh said the government’s push to bolster growth will support the rupee, which plunged to a record low earlier this week.
(Bloomberg News)