Stocks Fall, Led by China, on Rate Concerns; Metals, Euro Drop
Nov. 12 (Bloomberg) -- Stocks fell, led by a 5.2 percent drop in the benchmark Shanghai index, and commodities tumbled amid speculation China is preparing to raise interest rates. The euro weakened as a majority of global investors predicted that Ireland will default on its sovereign debt.
The MSCI Asia Pacific Index lost 1.5 percent to 132.28 as of 4:30 p.m. in Tokyo and the Shanghai Composite Index sank the most since August 2009. Standard & Poor's 500 Index futures slid 1.2 percent and those for the Euro Stoxx 50 Index decreased 1.6 percent. Zinc slumped in London and copper retreated from a record. The euro touched $1.3592, the weakest since Sept. 30, as Group of 20 leaders discussed Ireland's debt crisis. The Dollar Index, which tracks the U.S. currency against those of six trading partners, rose for a sixth day.
China stocks completed their first weekly decline since September on expectations the central bank will raise interest rates to cool growth and as the nation rejected policy prescriptions to allow the yuan to appreciate. More than half the respondents in the latest Bloomberg Global Poll said an Irish default is likely, showing that weeks of efforts by the government haven't allayed concerns about its creditworthiness.
"China's focus on containing inflation highlights the risk that other nations will face in the wake of global easing and rising commodity prices," said Olan Caperina, who helps manage $11 billion at Bank of the Philippine Islands. "There are still lingering concerns the global economy remains in a fragile state of recovery."
Banks accounted for more than 30 percent of the MSCI Asian index's slump. Mizuho Financial Group Inc. dropped 2.3 percent after the Wall Street Journal said G-20 ministers many not exempt Asian lenders from stricter capital holding requirements.
Inflation, Policy Risks
Bank of China Ltd. retreated 3.4 percent in Shanghai after Bank of America Merrill Lynch Research said inflation and policy risks will cloud "earnings visibility" for banks. Consumer prices rose 4.4 percent in October, topping the 4 percent median forecast in a Bloomberg survey of economists, a statistics bureau report showed yesterday.
The People's Bank of China may raise its benchmark one-year lending rate to 5.81 percent by year-end from 5.56 percent, according to the median forecast of 11 analysts surveyed after yesterday's price data. The deposit rate may climb to 2.75 percent from 2.5 percent, they said.
"There's talk of an interest rate hike over the weekend," said Wu Kan, a Shanghai-based fund manager at Dazhong Insurance Co., which oversees $285 million. "It's quite possible given how inflation has accelerated."
Zinc, Cotton
Metals, grains and oil fell. Zinc for three-month delivery fell 4.3 percent in London, the most since June, and tumbled by the 5 percent limit in Shanghai after China sold 49,993 tons of ingots at auction to cool domestic prices. Cotton also dropped by the daily limit in China, after having doubled since the beginning of September to reach a record high on Nov. 10. Sugar also declined by 5 percent in China.
Copper for three-month delivery in London declined as much as 2.8 percent, the most this month, to $8,584.50 a metric ton. The contract reached a record $8,966 yesterday. Crude oil slid 1.7 percent to $86.36 a barrel in New York, set for the biggest drop in a month, after rallying to a two-year high yesterday.
The euro traded at $1.3608, down from $1.3667 in New York, and slipped to 112.07 yen from 112.73 yen yesterday. Finance ministers from Germany, France and the U.K. are monitoring developments on Ireland's crisis and will probably issue a joint statement later today, said Steffen Seibert, a spokesman for German Chancellor Angela Merkel.
Irish Yields
The yield on Irish 10-year bonds rose to a record 6.52 percentage points above benchmark bunds yesterday. Bailing out Ireland's financial system could cost as much as 50 billion euros ($68 billion) under a "stress case" scenario compiled by the finance ministry and central bank.
The common currency also retreated before the release of a European Union statistics office report today that may say gross domestic product in the euro area increased 0.5 percent in the third quarter, slowing from 1 percent in the previous three months, according to a Bloomberg News survey.
A separate report today showed GDP growth in Germany, Europe's biggest economy, slipped to 0.7 percent in the third quarter from 2.2 percent in the second. Economists had predicted growth of 0.8 percent, according to the median of 37 estimates in a Bloomberg survey. In France, a report may also show the expansion dipped to 0.5 percent from 0.7 percent.
"People are starting to price in slowdown signs in the euro zone," said Naoto Minatogawa, a currency analyst at Himawari Securities Inc. in Tokyo. "Market attention is switching back to negative factors for the euro."
Won, Ringgit
The Dollar Index rose 0.2 percent, set for its first six- day gain since June. Against the U.S. currency, the won dropped 1.5 percent to 1,127.85, after appreciating 9 percent since June. Malaysia's ringgit declined 0.5 percent to 3.1165 per dollar.
G-20 leaders endorsed gradual changes in currency values and agreed to develop early-warning indicators to monitor policies that exacerbate trade imbalances and threaten to disrupt the global economy, officials said today.
Twelve-month yuan non-deliverable forwards decreased 0.8 percent to 6.4900 in Hong Kong, after Yu Jianhua, a director general at China's Ministry of Commerce, told reporters in Seoul yesterday that so-called quantitative easing will have a "very big impact" on developing countries. The renminbi has risen 22 percent in the past five years, the seventh best performance of 25 currencies, according to data compiled by Bloomberg.
Bond Risk
The cost of protecting Asia-Pacific bonds from non-payment increased to the highest level in at least two weeks, according to credit-default swap traders. The Markit iTraxx Australia index rose 4 basis points to 109 basis points, ICAP Plc prices show. That's the highest since Oct. 22, CMA said.
The iTraxx gauge for Asian borrowers outside Japan advanced 2 basis points to 105 while the gauge for Japan rose 1/2 basis point to 98.5, according to BNP Paribas SA and Morgan Stanley.
U.S. stock index futures fell before the release of a report on consumer confidence in the world's largest economy. The Thomson Reuters/University of Michigan preliminary sentiment index advanced to 69 this month from 67.7 in October, according to the median projection in a Bloomberg News survey. That would be the highest reading since June.
In the Treasury market, 30-year bonds surged and shorter- term notes fell after Federal Reserve Bank of Atlanta President Dennis Lockhart said the economy faces a "slow slog," leading investors to seek higher yields from longer debt. U.S. bond markets reopen today after the Veterans' Day holiday.
To contact the reporters on this story: Shiyin Chen in Singapore at schen37@bloomberg.net Ian C. Sayson in Manila at isayson@bloomberg.net
To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net
Find out more about Bloomberg for iPhone: http://m.bloomberg.com/iphone/Víctor Lei
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