Tuesday, April 21, 2009

Euro Rises as German Investor Confidence Improves; Metals Drop

The euro strengthened against the dollar after German investor confidence improved and the yen dropped on concern a government report tomorrow will show the country had a trade deficit for the fifth time in six months. European stocks pared their gains and metals prices fell.

The 16-nation currency snapped five days of declines versus the dollar after the ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations turned positive for the first time in two years. The Dow Jones Stoxx 600 Index of European shares increased 0.4 percent, cutting its rally by half. U.S. index futures rose.

“The ZEW survey was much, much stronger than expected,” said Roberto Mialich, a currency strategist at UniCredit Markets & Investment Banking in Milan. “The first reaction was a spike in the euro but one survey doesn’t change the negative trend.”

European stocks rose as sales at Tesco Plc and Burberry Group Plc bolstered speculation that the worst of the economic slump is passing. Futures on the Standard & Poor’s 500 Index rose 0.2 percent before earnings from Caterpillar Inc., Coca- Cola Co. and Yahoo! Inc. Copper slid 3.6 percent and nickel 5.2 percent in London.

While more than 67 percent of the S&P 500 companies that have reported first-quarter earnings in the past two weeks exceeded predictions, analysts estimate that profits will decline through the third quarter. Central banks in India and Sweden cut interest rates today to record low levels to combat the first global recession since World War II.

Euro, ZEW

“Risk sentiment has improved somewhat,” said David Woo, the London-based global head of foreign-exchange strategy at Barclays Plc. “The likelihood that the rally in risk assets during the last six weeks is going to be followed by a major correction is quite small.”

The euro traded as high as $1.2990, from $1.2921 yesterday, after the ZEW report showed its index rose to 13, from minus 3.5 in March. Economists expected a gain to 2, according to the median of 35 forecasts in a Bloomberg News survey.

The yen snapped three days of gains against the dollar and the euro before a report tomorrow that may show Japan had a March trade deficit of 27 billion yen ($275 million), according to a Bloomberg News survey of economists. The Japanese currency weakened to 98.28 per dollar, from 97.89 yesterday, and to 127.37 per euro, from 126.48.

Tesco, Burberry

Tesco, the second-largest European retailer, added 4.3 percent to 346.5 pence. The Cheshunt, England-based supermarket owner said U.K. sales have increased since the end of February even as profits grew at the slowest pace in 15 years.

Burberry, the U.K.’s largest publicly traded luxury-goods company, surged 9.5 percent to 363 pence. Revenue in the three months ended March 31 climbed to 334 million pounds ($486 million) from 292 million pounds a year earlier, the London- based maker of $1,295 checked Lowry handbags said. That beat the 318 million-pound estimate of seven analysts surveyed by Bloomberg News.

Peoria, Illinois-based Caterpillar and Atlanta-based Coca- Cola are scheduled to announce earnings before the open of regular U.S. trading. Yahoo of Sunnyvale, California, will post results after the close.

International Business Machines Corp. slipped 1.7 percent to $98.68 in German trading. The Armonk, New York-based company’s first-quarter revenue dropped 11 percent to $21.7 billion, falling short of an estimate of $22.6 billion in a Bloomberg survey of analysts.

Profits at S&P 500 companies decreased 38 percent in the first quarter and may slide 32 percent in the second, according to analysts’ estimates compiled by Bloomberg.

Metals Decline

Copper for delivery in three months on the LME fell as much as $212, or 4.6 percent, to $4,378 a metric ton. Nickel dropped as much as $635, or 5.3 percent, to $11,440 a ton, a one-week low. Zinc and lead also declined.

“The world economy by far is not yet working at full capacity,” said Christoph Kampitsch, who helps oversee $800 million in hedge funds at Erste Group Bank AG in Vienna. “There won’t be enough demand for oil or anything. People are waiting to see better economic data from places like China.”

The cost of protecting corporate debt from default increased, with the Markit iBoxx Corporate Bond Index climbing 0.1 percent to a two-month high of 82.32. Last week, the index rose 1.3 percent, the biggest weekly increase in at least five years, according to data compiled by Bloomberg.

The Markit iTraxx Crossover Index of credit-default swaps on non-investment grade companies jumped 22 basis points to 880, JPMorgan Chase & Co. prices showed, signaling a decline 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 of debt from default for five years is equivalent to 1,000 euros a year.