U.S. Stocks, Commodities Drop on Greece Concern, Profits

U.S. stocks dropped for a third day and commodities slid as speculation increased that Greece may miss debt reduction targets and United Parcel Service Inc. cut its profit forecast. German bonds fell after Moody’s Investors Service lowered the outlook on the nation’s Aaa rating.

The Standard & Poor’s 500 Index (SPX) sank 0.9 percent to 1,338.31 at 4 p.m. New York time. Futures on the equity gauge retreated 0.5 percent after regular trading as Apple Inc. (AAPL)’s profit missed analysts’ projections. The euro depreciated 0.4 percent to $1.2069 and slid for a fifth day against the yen. The yield on the 10-year German bund climbed six basis points to 1.24 percent after matching the record low of 1.127 percent yesterday. A gauge of U.S. company debt risk rose for a third day. S&P’s GSCI gauge of 24 raw materials fell 0.5 percent.

UPS, the world’s largest package-delivery company, and Whirlpool Corp., the biggest appliance maker, declined after reporting quarterly profit that trailed analysts’ estimates. Moody’s lowered the outlooks on the Aaa credit ratings of Germany, the Netherlands and Luxembourg yesterday, citing the “rising uncertainty” about Europe’s debt crisis.

“Europe continues to be less than positive,” Stephen Auth, the New York-based chief investment officer for equities at Federated Investors Inc., which manages $363.6 billion, said in a telephone interview. “People are looking at UPS as another sign the global economy is in a soft patch.”
Apple Misses

Apple sank 4.8 percent after the close of U.S. exchanges. The world’s largest company by market value posted profit and sales that fell short of analysts’ projections for only the second time since 2003 as customers held off on iPhone purchases while waiting for a new model to be introduced later in the year.

Moody’s left Finland as the only country in the 17-nation euro region with a stable outlook for its top ranking. Chancellor Angela Merkel’s government said Germany will remain Europe’s haven during the financial crisis, pushing back against Moody’s decision. The risks in the euro zone are “not new” and Germany remains “in a very sound economic and financial situation,” the Finance Ministry said.

The euro area is ready to act to help Spain as the country’s borrowing costs soar, Luxembourg Finance Minister Luc Frieden said. While Frieden said no work is being done for a bailout of the Spanish government, policy makers in the 17- country euro area must be prepared to move quickly.
Spanish Bonds

Spain’s benchmark 10-year bond yield reached a euro-era record of 7.625 percent earlier. Italy’s 10-year bonds fell for a third day after a report showed services and manufacturing in the euro region shrank in July. Government debt from the Netherlands dropped as its outlook was also lowered by Moody’s. Ten-year Treasury yields slipped two basis points to 1.40 percent.

“Europe’s recession is deepening and spreading to the core, including Germany,” said Kit Juckes, head of currency research at Societe Generale SA in London. “For investors, fearful of downgrades even to core debt, the path of least resistance will be to look outside Europe and hope that the U.S. data is a little stronger.”

Stocks extended losses after a Reuters report cited European Union officials saying Greece was seen missing targets for reducing debt. German Vice Chancellor Philipp Roesler said over the weekend that Greece was unlikely to be able to meet its obligations under the bailout program.

The S&P 500 pared losses in the final hour of trading after the Wall Street Journal said the U.S. Federal Reserve is moving closer to taking steps that may support economic growth. Fed Chairman Ben S. Bernanke told senators last week that the central bank is prepared to act to boost growth if the labor market doesn’t improve.
Euro, Yen

The euro weakened 0.7 percent to 94.34 yen. The Japanese currency rose versus all of its major peers as investors sought safety even as the nation’s government said it’s ready to combat its strength.

The Markit CDX North America Investment Grade Index, a credit-default swaps benchmark used to hedge against losses on corporate debt or to speculate on creditworthiness, increased 2.3 basis points to a mid-price of 115.7 basis points, according to prices compiled by Bloomberg.

Investors watched second-quarter corporate results. Sales rose an average 2.9 percent in the second quarter among 147 companies in the S&P 500 that have reported results so far, according to data compiled by Bloomberg. Only 40 percent of the reported companies have topped analysts’ estimates on sales, while 73 percent have beaten on profit, the data show.
UPS, Whirlpool

UPS (UPS) slumped 4.6 percent. The company is seeing revenue decline as it seeks to expand in Europe with the $6.5 billion acquisition of TNT Express NV. Whirlpool retreated 7.5 percent. The home appliance maker reported second-quarter earnings excluding some items of $1.55 a share, missing the average analyst estimate in a Bloomberg survey of $1.69.

DeVry Inc., a provider of education services, tumbled 25 percent after saying it plans to cut 570 jobs amid declining enrollment.

The Chicago Board Options Exchange Volatility Index, also known as the VIX, gained 8.8 percent to 20.26, the highest level since June 15.

The Stoxx 600 lost 0.5 percent. Elan Corp. sank 12 percent in Dublin after an experimental Alzheimer’s treatment developed with Pfizer Inc. and Johnson & Johnson failed to improve symptoms of dementia in a study.

Corn futures fell 0.9 percent, soybeans slumped 3.3 percent and wheat lost 3.7 percent. Rain may fall in parts of Iowa and Illinois this week and next, and the Midwest might get showers in the next 11 to 15 days, reducing severe moisture deficits, Commodity Weather Group LLC in Bethesda, Maryland, said in a report.

Oil rose for the first time in three days as clashes in Syria raised tension in the Middle East and a preliminary reading of a Chinese purchasing managers’ index showed it would be at the highest level since February. Crude futures gained 0.4 percent to settle at $88.50 a barrel on the New York Mercantile Exchange.

DBRS warns on Spain "tipping point" ahead of rating cut deadline

Spain is nearing a tipping point in which the euro zone country needs to restore investor faith or potentially be prompted to ask for a bailout in the face of unsustainable debt costs, credit rating agency DBRS said on Tuesday.

The agency warned that four factors could push Spain and the euro zone deeper into crisis: a sharper recession as stressed economy-wide financing conditions persist, an insufficient backstop of capital, external shocks, and setbacks to fiscal and structural adjustment.

"In the immediate future, if investor confidence is not restored, financial stabilization and economic recovery are likely to be delayed, increasing the difficulty of the fiscal adjustment and the need for bank recapitalization," wrote analysts Fergus McCormick and Alan G. Reid.

"Furthermore, if the stress on Spanish bond yields were to persist, it could call into question the affordability of sovereign debt. In this event, Spain may need to turn to official creditors" for help beyond its request for aid to the ailing banking sector.

DBRS said last month it would decide by late August whether to cut its ratings of Spain and Ireland below the crucial A threshold, a move that could substantially raise the cost of funding for the two countries' hard hit banks.

A downgrade from the A (high) rating DBRS now has for Spain and A (low) for Ireland, to triple-B or lower would -- under current European Central Bank rules -- trigger the ECB to charge commercial banks an additional 5 percent penalty for using Spain's bonds as collateral in its lending operations.

DBRS is one of four rating firms the ECB uses to rate collateral and, following Moody's three-notch downgrade of Spain in June, is the only one saving both Spanish and Irish bonds from the extra charge.

"Given its size as the fourth-largest economy in the euro zone, the stability of Spain is critical to the stability of Italy and the rest of the euro zone," McCormick and Reid wrote in Tuesday's report.

UK, east Europe most at risk from euro zone crisis: survey

Britain tops the list of outside economies most at risk from any worsening of the euro zone crisis because of its trade and banking links with the single currency bloc, a study by political risk think-tank Maplecroft showed on Wednesday.

The study ranked 169 countries according to their business with the debt-choked currency bloc as well as domestic resilience to a slowdown.

"Impacts for these economies include lowered industrial output, competitiveness loss and sovereign debts that could raise unsustainable levels due to rising yields," Maplecroft said.

EU member Britain's fiscal woes combined with strong trade links with the euro zone make its capacity for a response to further economic crises in the bloc "severely limited," the study said.

A collapse of large euro zone economies would cut Britain's trade by 7 percent and prompt losses equivalent to 7 percent of GDP for Britain's banks due to their exposure to the euro zone banks and sovereign bonds, Maplecroft added.

Countries in central Europe and Scandinavia as well as commodity-exporting African countries Ivory Coast and Mozambique are also among the 17 economies classed as being at "extreme risk", while the BRICs quartet of big emerging market nations Brazil, Russia, India and China is also highly exposed, the survey showed.

Fellow EU members Poland, Hungary and Czech Republic ranked second, third and fourth in terms of risk while Sweden and Denmark were placed eighth and ninth.

Many African countries, largely dependent on their strong trade and business links with the euro zone, made it to the top of the list, with Mauritania, Mozambique, Morocco and Ivory Coast part of the 17 countries with "extreme" exposure to the euro zone crisis.

Arab Spring countries Tunisia, Egypt and Libya follow closely behind, while Russia, Brazil and India were also tagged with a high exposure to the euro zone crisis.

Of the BRIC group of major emerging countries only China was ranked with no more than a medium exposure to the euro zone.

"These (BRIC) economies are not fully insulated from the slowdown themselves due to trade and investment relations with Europe and an escalating Eurozone crisis could further exacerbate current domestic slowdown in growth forecasts across the BRICS," the study said.

The study weighed trade links with the euro zone, foreign direct investments, euro area bank exposure, as well as debt, deficit and inflation.

"Both economies and business may seek to manage this risk by diversifying trading patterns to account for lower demand, either in third countries or by concentrating on domestic markets," said Mandy Kirby, an associate Director at the company.