U.S. Futures Slip as Euro Fluctuates on Greece; Oil Falls

By Nick Gentle and Yuko Takeo  Jan 26, 2015 8:53 AM GMT+0200

Bloomberg

U.S. equity-index futures slid and Treasuries rallied as the euro fluctuated near a more-than 11-year low after Greek voters handed victory to a party that’s pledged to renegotiate the terms of an international bailout. Asian stocks dropped with crude oil and industrial metals.

Standard & Poor’s 500 Index futures sank 0.6 percent by 3:51 p.m. in Tokyo and the yield on 30-year Treasuries fell to a record. The 19-nation euro dropped to as low as $1.1098, the lowest since September 2003, before gaining 0.1 percent. The MSCI Asia Pacific Index (MXAP) lost 0.3 percent. U.S. crude declined 1.6 percent and nickel slid 2.2 percent in London. China’s yuan headed for its biggest two-day drop since 2008 versus the dollar.

Greece’s Syriza won a more decisive victory than polls predicted, coming within two seats of an absolute majority with most votes counted. The success of Syriza, which pledged to secure a writedown of the nation’s debt and end austerity measures, is spurring concern that opponents of the European Union’s efforts to impose fiscal discipline elsewhere may also win power. Germany’s Ifo Business Expectations survey is due, while fighting in Ukraine spread to the port city of Mariupol.

“Nervous moves around currencies are to be expected,” said Miyuki Ohgami, Senior Strategist at Mizuho Securities Co. in Tokyo. “The fact that anti-austerity forces had such a big win suggests negotiations will be drawn out, and stocks were sold on this. But I think the market is getting calmer in its assessment of the situation and the negative effects won’t spread to the entire European region.”

Exit Risk

Tsipras, 40, has pledged to keep the nation within the single currency area as he negotiates a writedown of Greek debt and eases budget constraints that were imposed in return for aid after the country’s economic collapse. The current round of funding expires on Feb. 28 and talks with the so-called troika - - the International Monetary Fund, the European Commission and the European Central Bank -- for its renewal have stalled since September amid demands for further belt tightening.

Addressing supporters in central Athens Sunday night, Tsipras said Greece is putting austerity behind it. The Syriza government’s priority will be to restore the “lost dignity” of the Greek people and there will be “neither a catastrophic collapse nor will continued kowtowing be accepted.”

Germany’s Finance Ministry said in a statement that Finance Minister Wolfgang Schaeuble’s position was unchanged after the election result and “the agreements reached with Greece remain valid.” Finance ministers from the euro area are due to discuss Greece and its bailout in Brussels on Monday.

The euro retreated 7.4 percent versus the dollar this year through Friday, the biggest decline among 16 major currencies tracked by Bloomberg. The ECB last week pledged to pump 1.1 trillion euros ($1.2 trillion) into the region’s economy to stave off deflation and ignite growth.

BOJ Options

The euro sank as much as 1.4 percent to a more-than 16-month low of 130.15 yen today. Japan’s currency slipped 0.2 percent to 117.94 per dollar, after gaining 0.6 percent on Friday. Exports from Asia’s second-largest economy grew more than economists expected in December, data today showed.

The joint currency’s slide is putting pressure on China’s yuan, which today rose through 7 per euro for the first time since 2001. Europe as a bloc is the biggest trading partner for the world’s second-largest economy, where exports made up 26 percent of gross domestic product at the end of 2013, according to the World Bank.

Treasuries Rally

The yuan’s two-day drop of as much as 0.8 percent pushed it to a record 1.89 percent discount to the central bank’s reference rate. It sank as low as 6.2569 per dollar as the People’s Bank of China cut its daily fixing by 0.07 percent to 6.1384 a dollar, the lowest since Dec. 4. The spot rate rate is allowed to diverge a maximum 2 percent from the fixing.

The U.S. 30-year yield declined three basis points to 2.339 percent, according to Bloomberg Bond Trader data. The price of the 3 percent bond due in November 2044 rose 25/32, or $7.81 per $1,000 face amount, to 114 3/32. The yield was as low as 2.3336 percent.

Benchmark 10-year Treasuries advanced, with yields slipping as much as four basis points, or 0.04 percentage point, to 1.76 percent. The rate on similar maturity Japanese government bonds fluctuated between 0.215 and 0.23 percent.

“There’s uncertainty regarding the Greek problem,” said Hiroki Shimazu, the senior market economist in Tokyo at SMBC Nikko Securities Inc., a unit of Japan’s second-largest publicly traded bank. “That will help the bullish Treasury market, a flight to quality.”

U.S. Stocks

Futures on the Dow Jones Industrial Average plunged 0.6 percent and those on the Nasdaq 100 Index fell 0.5 percent. The S&P 500 lost 0.6 percent on Friday in New York, paring a weekly gain to 1.6 percent.

Copper dropped as much as 3.2 percent to $5,345 a ton in London, trading near the lowest since July 2009. Nickel lost as much as 2.3 percent. The Bloomberg Commodity Index slid 0.7 percent.

West Texas Intermediate crude fell to $44.89 a barrel after settling Jan. 23 at its lowest price since March 2009. Crude stockpiles in the U.S., the world’s biggest oil consumer, rose 7.4 percent from last year to end December at 383.5 million barrels, the American Petroleum Institute said in a monthly report.

U.S. oil erased gains spurred by the death of King Abdullah of Saudi Arabia on Jan. 23 after his successor said policies won’t change in the world’s largest crude exporting nation. Brent crude was down 1.4 percent to $48.13 per barrel.

To contact the reporters on this story: Nick Gentle in Hong Kong at ngentle2@bloomberg.net; Yuko Takeo in Tokyo at ytakeo2@bloomberg.net

To contact the editors responsible for this story: Nick Gentle at ngentle2@bloomberg.net Emma O’Brien

http://www.bloomberg.com/news/2015-01-25/euro-may-decline-as-greek-exit-polls-show-syriza-set-for-victory.html