BLBG: Pound, Euro Slump on Deficit Concern; Copper Soars After Quake
By Stuart Wallace
March 1 (Bloomberg) -- The pound and the euro tumbled on speculation European nations will struggle to rein in record budget deficits. Copper rose the most in 11 months after the earthquake in Chile, the world’s biggest producer.
The British currency dropped as much as 3 percent against the dollar, slumping below $1.50 for the first time since May 8, while the euro sank 0.8 percent. Copper gained as much as 6.2 percent, the most since April. Europe’s Dow Jones Stoxx 600 Index fluctuated between gains and losses, while futures on the Standard & Poor’s 500 Index rose 0.3 percent. Greek bonds rallied, sending the yield on the two-year note down 25 basis points to 5.83 percent.
The U.K. currency slid after a YouGov Plc poll indicated an election due by June 10 would leave neither Gordon Brown’s ruling Labour party nor the opposition Conservatives with a majority of seats in Parliament, hampering efforts to cut the record deficit. European Union officials may demand deeper budget cuts from Greece in meetings today. Mines in Chile, which exports 36 percent of the world’s copper ores and concentrate, were closed by the magnitude-8.8 earthquake Feb. 27.
“Sterling is really suffering and leading the way,” said Ian Stannard, a senior currency strategist at BNP Paribas SA in London. “And in the eurozone, problems are going to continue and the euro is going to continue to suffer as a result.”
Currency Moves
The pound dropped 2.3 percent to $1.4889 after sliding to $1.4784, the lowest level since May 1. The U.K. currency fell against all 16 of its most-traded counterparts, weakening 1.6 percent to 90.918 pence per euro.
The yen weakened against higher-yielding currencies including South Africa’s rand and the Australian dollar. The Japanese currency depreciated 0.4 percent to 120.81 per euro, and fell 0.4 percent to 89.26 versus the dollar.
U.K. gilts, U.S. Treasuries and German bonds declined. The yield on the 10-year gilt rose 8 basis points to 4.11 percent, and the similar maturity German bund yield climbed 3 basis points to 3.13 percent. The 10-year Treasury yield advanced 1 basis point to 3.62 percent.
Copper rose as high as $3.487 a pound in New York trading, erasing this year’s decline. Lead, zinc and tin also rose in London.
Greek Securities Rally
Greek bonds and stocks rallied as European Union governments crafted a possible rescue package. The yield on the two-year Greek note slid as much as 69 basis points, the biggest decline since Feb. 10. The cost of insuring Greek bonds against default fell, with credit-default swaps tied to the nation’s debt dropping 28.5 basis points to 335.5, according to CMA DataVision.
The ASE Index of equities rose for a second day, advancing as much as 3.1 percent.
The MSCI World Index of 23 developed nations’ stocks fell 0.2 percent. Prudential Plc fell 13 percent after agreeing to buy one of American International Group Inc.’s Asian life- insurance units for $35.5 billion. BHP Billiton Ltd. and Rio Tinto Group both advanced as commodities climbed. Vivendi SA surged as much as 4.2 percent after the owner of the world’s largest video-game company reported earnings that beat estimates.
The gain in U.S. futures suggested the S&P 500 may extend the 0.1 percent gain on Feb. 26. Billionaire Warren Buffett, writing in a Feb. 27 letter to investors, said the U.S. residential real estate slump will end by about 2011.
U.S. Economy
The Institute for Supply Management’s manufacturing index probably declined to 58 last month from a January reading of 58.4, according to the median forecast of economists in a Bloomberg News survey. A figure higher than 50 signals expansion. Personal spending probably rose 0.4 percent in January, double the December gain, while incomes may have increased 0.4 percent for a second month, economists said.
The MSCI Emerging Markets Index headed for its biggest two- day advance since Jan. 5 as gains by commodity producers lifted Russia’s Micex Index 0.6 percent.
Turkey’s ISE National 100 Index jumped 2 percent and the lira strengthened for the first time in three days on speculation tension between the military and the government is easing after the release of eight officers questioned in an investigation into allegations of a 2003 coup plot against Prime Minister Recep Tayyip Erdogan’s government.
To contact the reporter for this story: Stuart Wallace in London at swallace6@bloomberg.net
