Stocks Decline on Earnings as Draghi's Remarks Spur Euro Slide

(Bloomberg) -- Stocks halted a two-day rally as traders assessed earnings from some of the world’s largest companies. The euro fell after Mario Draghi said the region’s central bank hasn’t discussed extending or tapering stimulus.

Equities slumped as lackluster forecasts from Nestle SA to EBay Inc. outweighed optimism with American Express Co. and Deutsche Lufthansa AG’s projections. The European currency slid against most major peers and German bond yields dropped on speculation traders will have to wait until at least December for news on policy changes. Crude sank as Russia’s largest oil company said the country could boost production, while Nigeria lowered prices.

Traders weighed a batch of corporate results, a final U.S. presidential debate and the European Central Bank’s decision to leave its quantitative-easing program unchanged. While Draghi reiterated that officials will extend the institution’s unprecedented stimulus if needed, he refrained from talking about the future of asset purchases. That left investors guessing at a time when the global economy keeps showing signs of uneven growth.

“It seems like Draghi wants to say as little as possible,” said Mark Dowding, a partner and fund manager at BlueBay Asset Management in London. “Market reaction suggests some slight disappointment that further easing measures were not discussed. However, moves were tempered by Draghi fudging everything else and wanting to push the focus to the December meeting.”

Stocks

MSCI’s gauge of global shares dropped 0.1 percent at 4 p.m. in New York, following the biggest back-to-back rally in a month. The S&P 500 Index retreated 0.1 percent to 2,141.34. Meanwhile, banks led European shares higher after Draghi said the ECB probably won’t stop its asset buying abruptly.

The policy update brought welcome relief for European lenders, which suffered the most since QE began last year as concerns grew that their profitability would be hit by a low-yield environment. Last month, the Bank of Japan spurred a rally in global banks after it said it would tweak its asset-buying program to better manage the difference between short and long-term bond yields.

“We do expect action in December and that’s on track,” said Michael Ingram, a market strategist at BGC Partners in London. “There’s still some hope that the ECB will follow the lead of the Bank of Japan and focus on the yield curve and help bank profitability.”

Among stocks moving on corporate news:

• Nestle slid after forecasting the slowest full-year sales growth in more than a decade.

• EBay sank after projecting fourth-quarter revenue that may miss analysts’ estimates.

• American Express surged after boosting its full-year profit forecast.

• Lufthansa jumped after the German carrier raised its 2016 earnings estimate.
  
  

Currencies

The euro fell 0.4 percent to $1.0927, erasing gains of as much as 0.6 percent. The single currency has slipped 2.7 percent this month, after trading in its tightest quarterly range against the greenback on record in the three months through September.

“It’s a very volatile session for the euro,” said Valentin Marinov, head of Group-of-10 currency strategy at Credit Agricole SA’s corporate and investment-banking unit in London. “Because of what Draghi didn’t convey today, markets are starting to question how committed the ECB is to extending its current asset-purchase program beyond 2017.”

Europe’s unprecedented QE plan was designed to stimulate inflation and economic growth. Stimulative monetary policy tends to weaken a currency, potentially benefiting a sluggish economy by making exports cheaper and boosting consumer prices.

Bloomberg’s Dollar Spot Index, which tracks the currency against 10 major peers, rose 0.5 percent after falling for three straight days.

Elsewhere in the world, Brazil’s real rallied after the central bank’s hawkish statements fueled investor appetite for the world’s best carry trade. Turkey’s lira reversed losses after policy makers kept interest rates on hold, defying expectations for a reduction. Australia’s dollar slid after employers unexpectedly cut jobs, spurring traders to raise bets on lower borrowing costs next month.

Commodities

The Bloomberg Commodity Index halted a five-day advance as the dollar climbed, spurring a slide in metals and crude.

Oil retreated from the highest level since July 2015 after the head of Rosneft PJSC said Russia is capable of raising production "significantly," and Nigeria lowered prices for its oil in a bid for market share.

“This news could have been the catalyst of why these technical traders and other funds might have wanted to get out,” said Bart Melek, the head of global commodity strategy at TD Securities in Toronto. “I wouldn’t say that the statements we’re hearing from various interested parties at this point are set in stone. I would see them as positioning for the upcoming negotiations.”

West Texas Intermediate for November delivery fell 2.3 percent to expire at $50.43 a barrel on the New York Mercantile Exchange. Brent for December settlement declined by $1.29 to end the session at $51.38 a barrel on the London-based ICE Futures Europe exchange. The global benchmark traded at a premium of 75 cents to WTI for December.

Bonds

Germany’s 10-year bund yield dropped three basis points, or 0.03 percentage point, to 0.003 percent as of 4:30 p.m. London time, after climbing as much as four basis points. The yield dropped earlier below zero for the first time in two weeks, reaching minus 0.001 percent.

Investors scrutinized Draghi’s comments about adjustments to the rules of the current QE program after the Governing Council tasked officials with examining options to ensure it doesn’t face scarcity problems. Seventy-three percent of respondents in the Bloomberg survey said the ECB will eventually alter its program to deal with this issue.

Speculation that the ECB will taper its 1.7 trillion-euro QE program, which is scheduled to run until March 2017 or beyond if necessary, triggered a slide in euro-zone debt earlier this month. German 10-year bund yields climbed on Oct. 17 to the highest since the U.K.’s vote on June 23 to leave the European Union.

The ECB’s effort to chart a steady course comes as gauge of swings in Treasuries approached the lowest in almost two years, with investors refraining from setting new positions before next month’s U.S. presidential election and amid expectations that the Federal Reserve will raise interest rates this year.

Treasury 10-year yields rose one basis point to 1.75 percent, according to Bloomberg Bond Trader data.

--With assistance from Jake Ulick Emma O’Brien Wes Goodman James Herron Francine Lacqua Stephen Kirkland David Goodman Paul Dobson Camila Russo Anchalee Worrachate Yun Li Jessica Summers Lananh Nguyen Marianna Duarte De Aragao John Hyland and Rebecca Spalding

To contact the reporters on this story: Rita Nazareth in New York at rnazareth@bloomberg.net, Alan Soughley in Singapore at asoughley@bloomberg.net.

To contact the editors responsible for this story: Jeremy Herron at jherron8@bloomberg.net, Rita Nazareth

©2016 Bloomberg L.P.