BLBG: Commodities Plunge on Spanish Banking, Korean Tensions
By Stuart Wallace
May 25 (Bloomberg) -- Stocks fell around the world, with the benchmark index at a nine-month low, and commodities slumped on mounting tension on the Korean peninsula and concern Spain’s ailing banks signal a widening European debt crisis. The German bund yield dropped to its lowest in at least two decades.
The MSCI World Index of 23 developed nations’ stocks fell as much as 1.9 percent to the lowest since August and was 1.6 percent lower at 12:01 p.m. in London. Futures on the Standard & Poor’s 500 Index retreated 2.3 percent and the MSCI Emerging Markets index declined 3.6 percent. Brent crude oil slid below $69 a barrel for the first time since February. The euro fell for a second day against the dollar, losing 1.5 percent to $1.2189. The yield on the German bund declined to 2.56 percent. The South Korean won weakened 3 percent against the dollar.
Four Spanish banks said they will combine as regulators push lenders to merge with stronger partners and after the International Monetary Fund yesterday urged the nation to take more steps to overhaul its financial institutions. The North Korea Intellectuals Solidarity group said on its website that the country’s military was put on alert, and the U.S. announced plans yesterday to conduct anti-submarine exercises with South Korea following the March 26 torpedoing of a warship.
“Increasing tensions on the Korean peninsula, coupled with deepening concern about sovereign debt risks in Europe, are affecting investors’ sentiment,” said Kim Young Joon, a fund manager at NH-CA Asset Management in Seoul, which manages $9.7 billion in assets. “But much of North Korea’s comments appear bluffing. I don’t think another disastrous event will happen.”
European Stocks
The Stoxx Europe 600 Index tumbled 2.5 percent to the lowest level since September. Banco Santander SA, Spain’s biggest lender, slid 5.5 percent and Bank of Ireland Plc plunged 11 percent as banks led declines. Futures on the S&P 500 expiring in June dropped 2.3 percent before reports on U.S. home prices and consumer confidence.
The S&P/Case-Shiller index of property values in 20 cities, due at 9 a.m. New York time, rose 2.5 percent in March from a year earlier, the best performance since 2006, according to the median forecast of economists surveyed by Bloomberg News. The Conference Board’s consumer sentiment index for May, due at 10 a.m., may climb to 58.5, the highest level since September 2008.
The MSCI emerging index headed for its biggest decline since Aug. 17 as equity gauges in every major emerging market open for trading declined more than 1 percent. South Korea’s Kospi Index sank 2.8 percent, the won weakened the most since March 2009 and the cost of insuring against South Korea defaulting on its debt rose, with credit-default swaps tied to the nation climbing 33 basis points to 176, according to CMA DataVision. Russia’s Micex Index fell 3.8 percent, extending its drop from an April 15 high to 20 percent.
Crude Oil Declines
Brent crude oil retreated 3.3 percent to $68.80 a barrel in London trading, declining for a ninth day. Copper for delivery in three months dropped 2.6 percent to $6,730 a metric ton on the London Metal Exchange. Aluminum, nickel and zinc also fell. Palladium for immediate delivery slumped 4.6 percent to $428.05 an ounce. Wheat fell 1.1 percent to $4.625 a bushel in Chicago.
The 16-nation currency weakened versus nine of its 16 most- traded peers, sliding to the lowest level since November 2001 against the Japanese currency. The 10-year bund yield fell eight basis points to 2.58 percent after dropping to the lowest since Bloomberg records began. The 10-year U.S. Treasury yield slid 10 basis points to 3.1 percent.
The rate that banks say they charge each other for three- month loans in dollars rose to the highest level since July 7, the British Bankers’ Association said. The London interbank offered rate, or Libor, for such loans, advanced three basis points to 0.536 percent, the BBA said.
Joint Efforts
China and the U.S. focused their first day of talks in Beijing on joint efforts to prop up the world’s economy in the face of a European sovereign-debt crunch that pushed off a showdown on the yuan’s value.
Officials “spent quite a bit of time discussing the European debt crisis,” Chinese central bank Governor Zhou Xiaochuan said at a press briefing. The nation’s currency policy is being “touched upon” at the talks, he said.
U.S. Treasury Secretary Timothy F. Geithner told Bloomberg Television in an interview that he’s “as confident as I’ve ever been” that China has a growing incentive to let the yuan gain against the dollar. Revaluing the yuan is “absolutely” in China’s long-term economic interest, Geithner said.
China is committed to preserving stability in the northeast Asian region, U.S. Secretary of State Hillary Clinton said today in Beijing, at the end of the Strategic & Economic Dialogue.
Credit-default swaps on the Markit iTraxx Crossover Index of 50 mostly junk-rated European companies climbed 47.5 basis points to 637, the highest since July 29, according to JPMorgan Chase & Co. prices. An increase signals deterioration in investor perceptions of credit quality.
To contact the reporter on this story: Stuart Wallace at swallace6@bloomberg.net.
