Stocks, Metals Fall on Europe Concern; U.S. Futures Pare Gains
Oct. 4 (Bloomberg) -- Stocks and commodities dropped a third day, the euro touched the lowest level in more than a decade against the yen, while German government bonds climbed, on concern Europe's debt crisis will worsen. Standard & Poor's 500 Index futures pared earlier gains.
The MSCI All Country World Index sank 1 percent at 8:25 a.m. in London, set for its lowest close since July 2010. S&P 500 futures trimmed a rally of as much as 0.7 percent, following a two-day drop that left the U.S. gauge within 1 percent of levels commonly seen as a bear market. Yields on German 10-year bunds dipped 10 basis points. S&P's GSCI Index declined 0.9 percent, paced by copper and oil. The euro traded at 100.97 yen, after earlier dropping to 100.76, the weakest since June 2001.
Goldman Sachs Group Inc. cut its global growth forecasts and predicted recessions in Germany and France. European finance ministers meeting yesterday considered "technical revisions" to a July deal for a second Greek bailout, fueling concern bondholders may have to take bigger losses on the nation's debt. Data today forecast to show U.S. factory orders stalled.
"Investors are focused on European sovereign debt, they're focused on European banks, and they're worried about the end game for Greece and the possible contagion to Italy and Spain, and right now that's trumping everything else," Russ Koesterich, the San Francisco-based global chief investment strategist for the IShares unit of BlackRock Inc., said in a Bloomberg Television interview. His firm oversees $3.66 trillion as the world's largest asset manager. "The market is not likely to bottom until we see some signs of clarity in Europe."
About 34 shares fell for every one that gained on the Stoxx Europe 600 Index, which retreated 1.6 percent. Germany's DAX Index dropped 2.1 percent, France's CAC 40 declined 2.2 percent and the U.K.'s FTSE 100 slipped 1.6 percent. Dexia SA, Belgium's biggest bank by assets, tumbled 32 percent after its board asked the company to solve its "structural problems."
The MSCI Asia Pacific Index sank 1.8 percent. The gauge started the fourth quarter with a 2.6 percent drop yesterday and is down 21 percent for the year. Japan's Nikkei 225 Stock Average slipped 1.1 percent, Hong Kong's Hang Seng Index lost 2 percent, and the Kospi Index tumbled 3.6 percent in South Korea, where financial markets were closed for a holiday yesterday. China remains shut for the rest of the week.
Toyota Motor Corp. slipped 2.5 percent in Tokyo after Asia's largest automaker reported a 17 percent drop in U.S. sales. Hyundai Motor Co. and affiliate Kia Motors Corp. dropped at least 2.8 percent each after their sales gains missed analyst expectations. Kawasaki Kisen Kaisha Ltd. sank 4.5 percent as Japan's third-biggest shipping line by sales forecast a full- year net loss because of lower transport rates.
The world economy will probably expand 3.8 percent this year and 3.5 percent in 2012, compared with earlier predictions of 3.9 percent for 2011 and 4.2 percent for next year, Goldman Sachs economists Jan Hatzius and Dominic Wilson wrote in an Oct. 3 report. The brokerage lowered its forecast for earnings growth in Asia excluding Japan in a separate report today.
The S&P 500 slumped 2.9 percent yesterday to close at the lowest level since Sept. 8, 2010. The benchmark U.S. stocks gauge has dropped 19 percent since April 29, when it climbed to the highest level since 2008. A Commerce Department report today may show factory orders were little changed in August, after a 2.4 percent gain the prior month, according to economists surveyed by Bloomberg.
Yields on 10-year Treasuries were little changed at 1.76 percent after dropping 16 basis points yesterday. The rate on 30-year bonds sank 19 basis points yesterday to the lowest level since January 2009 after the Federal Reserve bought $2.5 billion of longer-term debt. Thirty-year yields were three basis points higher at 2.75 percent today.
Japan's bonds rose, dragging 10-year yields down 2.5 basis points to 0.990 percent. The Ministry of Finance will sell 2.2 trillion yen ($28.7 billion) of 10-year bonds today.
The euro traded at $1.3182 after earlier touching $1.3164, the weakest since Jan. 13. German Finance Minister Wolfgang Schaeuble opposed moves to increase the scale of the euro rescue fund, damping speculation of a breakthrough in talks to quell the crisis.
Speaking to reporters early today after chairing a meeting of euro finance chiefs, Luxembourg Prime Minister Jean-Claude Juncker gave no details about a possible recalibration of the debt exchange for Greece. The July agreement had called for investors to contribute 50 billion euros ($66 billion) to a 159 billion-euro rescue.
"If we don't get a resolution in Greece, we may see a disorderly default," said Koichi Kurose, chief economist in Tokyo at Resona Bank Ltd. which oversees the equivalent of $68 billion in assets. "The politicians are all over the place."
The Australian dollar dropped as much as 0.8 percent to 94.56 U.S. cents. The Reserve Bank of Australia kept interest rates unchanged at 4.75 percent today, citing the threat of Europe's sovereign-debt crisis and the outlook for global growth. The currency pared losses after data today showed the nation's trade surplus in August was the widest since June 2010.
The cost of insuring Asia-Pacific corporate and sovereign bonds against non-payment jumped, with the Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan increasing 11 basis points to 275, Credit Agricole SA prices show. That's set for its highest close since May 1, 2009, according to CMA, which is owned by CME Group Inc., and compiles prices quoted by dealers in the privately negotiated market.
Oil for November delivery dropped 1.3 percent to $76.64 a barrel in electronic trading on the New York Mercantile Exchange. Futures fell yesterday to the lowest settlement in more than a year. U.S. crude inventories climbed for a second week, an Energy Department report tomorrow may show. Libya aims to raise production to more than 500,000 barrels a day by the end of this month, according to Nuri Berruien, the chairman of state-run National Oil Corp., in Tripoli yesterday. The nation pumped 100,000 barrels a day in September.
Three-month copper declined 1.9 percent to $6,859.75 a metric ton on the London Metal Exchange, set for a fifth day of declines. Prices pared losses of as much as 4 percent. Nickel dropped 1.5 percent to $18,733 a ton, trimming a slump of as much as 2.8 percent.
Gold for immediate delivery rose 0.8 percent to $1,671.48 an ounce, a fourth day of gains, while cash silver rallied 1.5 percent to $30.8750 an ounce. The turmoil in Europe will take away "some of the upside" to commodity prices, not reverse it, Goldman Sachs said in a report today.
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