Asian stocks declined the most this month, the euro weakened to a two-week low against the dollar and yen, while Australia’s bond risk surged amid concern Europe’s debt crisis will spread to Italy as growth in the U.S. and China slows.
The MSCI Asia Pacific Index sank 1 percent at 2 p.m. in Tokyo. Futures on the Standard & Poor’s 500 Index dropped 0.5 percent. The euro lost 0.5 percent to $1.4189 and fell 0.4 percent to 114.59 yen. The won retreated from a three-year high. The Markit iTraxx Australia index jumped six basis points, set for its biggest daily gain in seven months. Oil slid 0.7 percent in New York. Copper advanced as much as 0.5 percent in London.
A meeting of European Union and European Commission chiefs today was enlarged amid speculation Italy may be engulfed by the crisis and divisions on how to structure aid for Greece. China’s consumer prices rose the most in three years in June and exports increased the least since December, adding to signs that Asia’s largest economy cooled last quarter. Alcoa Inc. (AA) will start the second-quarter earnings season today in the U.S., where data on July 8 showed the unemployment rate rose as hiring slowed.
“We’re heading into ‘risk off,’ particularly with all these jitters about Italy potentially facing some problems with its debt,” Arjuna Mahendran, Asian head of investment strategy at HSBC Private Bank, said in a Bloomberg Television interview in Singapore. “There is a lot of worry around.”
About three shares declined for every one that advanced on MSCI’s Asia Pacific Index, which was headed for its biggest drop since June 27. Japan’s Nikkei 225 Stock Average lost 0.7 percent and Hong Kong’s Hang Seng Index slumped 0.9 percent.
Australia Tax
Australia’s S&P/ASX 200 Index slipped 1.5 percent, Asia’s biggest drop, after Prime Minister Julia Gillard yesterday announced the nation’s first tax on greenhouse gas emissions. Macarthur Coal Ltd. (MCC) tumbled 3.3 percent while Virgin Blue Holdings Ltd. (VBA) decreased 2.9 percent amid speculation the levy will hurt the earnings of mining companies and airlines.
Industrial & Commercial Bank of China Ltd. slid 1 percent, pacing declines among Chinese financial companies traded in Hong Kong, after the nation’s consumer price index jumped 6.4 percent in June, the most since June 2008 and more than the 6.2 percent forecast by economists. Separate data released yesterday showed exports rose a smaller-than-forecast 17.9 percent, while imports grew 19.3 percent, less than analysts had predicted.
The S&P 500 fell 0.7 percent on July 8, its biggest loss in two weeks, after Labor Department figures showed U.S. payrolls rose 18,000 in June, 83 percent less than economists predicted. The unemployment rate rose to a 2011 high of 9.2 percent.
U.S. Earnings
Alcoa, the largest U.S. aluminum producer, will be the first company on the Dow Jones Industrial Average to report quarterly earnings today. Profits at S&P 500 companies are projected to have gained 13 percent in the second quarter, the smallest increase in two years, according to analyst estimates compiled by Bloomberg.
Treasury 10-year yields fell one basis point to 3.01 percent, following an 11 basis point drop on July 8. President Barack Obama and congressional leaders made little progress in debt-reduction talks a day after House Speaker John Boehner said all sides must settle for a smaller plan than the president seeks, according to congressional aides familiar with the talks.
The euro weakened against 14 of its 16 most-actively traded counterparts. The shared currency touched $1.4183, the lowest level since June 27, and reached 114.40 yen earlier. A regular meeting of EU President Herman van Rompuy and Commission President Jose Manuel Barroso will be enlarged to include European Central Bank President Jean-Claude Trichet, Luxembourg Prime Minister Jean-Claude Juncker and European Economic Commissioner Olli Rehn, said Jesus Carmona, a spokesman for Van Rompuy, in a phone interview yesterday.
‘Contagion’ Concerns
The euro-region’s bailout fund may have to be doubled to 1.5 trillion euros ($2.13 trillion) to cover a crisis in Italy, the ECB said, according to German newspaper Die Welt, citing unidentified “high ranking” people at central banks. European leaders are prepared to accept that Greece should default on some of its bonds as part of a new bailout plan for the country that would put its total debt levels on a sustainable footing, the Financial Times reported, citing unnamed senior officials.
“There is a chance of contagion should default occur and that has consequences for the private sector, the banks in Europe, for credit spreads, borrowing costs and bond yields globally,” said Steven Milch, an investment strategist at Suncorp Wealth Management in Sydney. “So it’s clearly more than just Greece; whether it’s Italy or Spain or Portugal or Ireland is hard to say but clearly there are some serious issues there.”
Kiwi, Aussie
The South Korean won depreciated 0.2 percent to 1,059.15 per dollar, after rising on July 8 to the strongest level since August 2008. Malaysia’s ringgit dropped 0.4 percent to 3.0035 per dollar after a report showed industrial production fell for a second straight month. The New Zealand dollar slipped 0.4 percent to 83.44 U.S. cents, snapping a three-day gain, while Australia’s currency weakened 0.4 percent to $1.0711.
The cost of protecting Asia-Pacific corporate and sovereign bonds from default increased, with the Markit iTraxx Australia index rising to 117.5 basis points, headed for the highest close since June 28, prices from Australia & New Zealand Banking Group Ltd. and CMA show.
Crude fell 0.7 percent to $95.52 a barrel on the New York Mercantile Exchange, extending a 2.5 percent plunge July 8. Three-month copper climbed 0.2 percent to $9,680.25 a metric ton on the London Metal Exchange, after earlier reaching $9,712.25. Chinese imports of the metal rose for the first time in three months in June.
To contact the reporter on this story: Shiyin Chen in Singapore at schen37@bloomberg.net
To contact the editor responsible for this story: Alexander Kwiatkowski at akwiatkowsk2@bloomberg.net
