BLBG: Crude Oil Fall on India Rate Increase, Growth Concerns
By James Regan and Shani Raja
March 22 (Bloomberg) -- Stocks dropped and the oil price slid for a third day after a surprise interest-rate increase in India fanned concern the global recovery will stall as economic stimulus programs are wound back.
The MSCI Asia Pacific ex Japan Index fell 1.2 percent to 416.34, retreating from near a two-month high, and crude oil declined 0.5 percent to $80.25 a barrel. Futures on the U.S. Standard & Poor’s 500 Index fell 0.5 percent and those for the Euro Stoxx 50 were 0.4 percent lower as of 7:26 a.m. in London. The euro slipped four a fourth day against the yen after Germany curbed speculation the European Union will agree to financial aid for Greece at a meeting this week.
Advanced economies face “acute” challenges in reining in debt which, relative to their economies, is approaching levels seen after World War II, said John Lipsky, first deputy managing director of the International Monetary Fund. The Reserve Bank of India raised its benchmark rates after local financial markets closed on March 19, a month earlier than the next scheduled review, to tame the fastest inflation in more than a year.
“Some investors are increasingly jittery about the inflationary outlook and high levels of sovereign debt,” said Tim Schroeders, who helps manage about $1.1 billion at Pengana Capital Ltd. in Melbourne. “The IMF’s comments switch the spotlight to a medium-term limitation of the global economy.”
The world economy will expand 3.9 percent this year and 4.3 percent in 2011, following a contraction of 0.8 percent in 2009, according to IMF estimates released in January. A report tomorrow in the U.S. will probably show existing home sales fell to an eight-month low in February, based on the median estimate of 64 economists surveyed by Bloomberg News.
Inflation Risk
India’s central bank raised its reverse repurchase rate to 3.5 percent from a record-low 3.25 percent and the repurchase rate to 5 percent from 4.75 percent, saying containing inflation has become “imperative.” The yield on the nation’s 6.35 percent bond due January 2020 rose as much as 20 basis points to 8.03 percent, the highest level for a benchmark 10-year note since October 2008.
“The surprise factor in the RBI’s action was not that they hiked rates, but that it took place ahead of the next policy meeting, a fact that reflects the urgency to tackle inflation pressures,” Mitul Kotecha, head of global currency strategy at Credit Agricole CIB in Hong Kong, wrote today in a research note. “Further rate hikes are likely over coming months as the bank moves further to contain inflation.”
Policy Tightening
Policy makers in Australia and Malaysia have also increased rates since the end of February, while China has ordered lenders to set aside more funds as reserves twice this year. China and India are the world’s two fastest-growing major economies and home to about 37 percent of the world’s population.
Resource companies led declines among Asian stocks on concern demand for raw materials will cool. BHP Billiton Ltd., the largest mining company, fell 1.4 percent in Sydney and Rio Tinto Group, the third-biggest, dropped 1.5 percent.
Posco, Asia’s No. 1 maker of stainless steel, declined 3.3 percent in Seoul, and PetroChina Co. dropped 2.8 percent in Hong Kong, their worst performances in six weeks. PetroChina, China’s largest energy company, and Royal Dutch Shell Plc agreed to buy Brisbane-based Arrow Energy Ltd. for A$3.5 billion ($3.2 billion) in a revised takeover bid, according to company announcements published today. Arrow Energy slid 3.6 percent in Sydney.
Hong Kong’s Hang Seng Index fell 2 percent, the biggest decline among Asia’s stock benchmarks. Financial markets were closed today in Japan for a holiday.
Greece Jitters
The euro weakened 0.1 percent to 122.42 yen, earlier touching 122.17, the lowest since March 10. Against the dollar, the 16-nation currency slid 0.1 percent to $1.3515, near to a two-week low of $1.3503 reached on March 19.
EU leaders must not create “illusions” for markets by building expectations for Greek aid, German Chancellor Angela Merkel said in an interview with Deutschlandfunk that aired yesterday. Her remarks came after Greek Prime Minister George Papandreou and European Commission President Jose Barroso said the EU should spell out its rescue plan at the March 25-26 summit in Brussels. Greece is seeking help before 20 billion euros ($27 billion) of its debt matures in the next two months.
“Ahead of the EU summit, concerns about Greece’s funding difficulties are expected to weigh on the euro,” said Danica Hampton, a senior markets strategist at Bank of New Zealand Ltd. in Wellington. “Meantime, the dollar will likely remain firm as investors fret about how the global economy will cope with further stimulus removal.”
Cheaper Gold
Australia’s dollar declined for a third day after the price of gold, the nation’s third most valuable commodity export, dropped the most in six weeks.
The currency slid to 91.23 U.S. cents in Sydney, from 91.54 in New York at the end of last week. Gold futures for April delivery were little changed at $1,106.50 an ounce after sliding 1.8 percent on March 19, the biggest drop for a most-active contract since Feb. 4.
The cost of protecting bonds in Australia from default rose as benchmark credit-default swaps indexes rolled into a new series.
The Markit iTraxx Australia index Series 13 was quoted at 89.5 basis points in Sydney, according to Citigroup Inc. That compares with a close of 84 basis points for Series 12 on March 19, according to CMA DataVision prices in New York. Constituent companies in the two series are the same.
The swap contracts pay the buyer face value in exchange for the underlying securities if a borrower fails meet its debt agreements. A basis point is 0.01 percentage point.
To contact the reporters for this story: James Regan in Hong Kong at jregan19@bloomberg.net; Shani Raja in Sydney at sraja4@bloomberg.net
