Asian shares fell, extending the global stock market selloff to six days, while commodities sank on concern the U.S. recovery is faltering. Bonds rallied, with 10-year Treasury yields sinking to an eight-month low.
The MSCI Asia Pacific Index lost 2.3 percent as of 11:47 a.m. in Tokyo. Standard & Poor’s 500 futures rose less than 0.1 percent after a seven-day drop that erased the U.S. gauge’s 2011 gains. Ten-year Treasury yields declined to 2.58 percent and the rate on Australian 10-year debt reached a two-year low. The dollar strengthened against 14 of 16 major counterparts. The S&P GSCI Index of commodity prices slid 0.4 percent, with oil retreating for a fourth day in New York.
The U.S. economy is “balanced on the edge,” said Harvard University professor Martin Feldstein, who joined four members of a nine-person panel that dates recessions in seeing rising odds of another downturn. Moody’s Investors Service and Fitch Ratings warned of possible U.S. credit-rating downgrades yesterday. The country’s consumer spending unexpectedly fell in June for the first time in almost two years and data today may show factory orders shrank and employers added fewer workers.
“The world is clearly not a happy place right now,” said Troy Angus, who helps oversee the equivalent of about $7.5 billion at Paradice Investment Management in Sydney. “The market is refocusing its attention on the economic data in the U.S. and also in Europe, which continue to be poor.”
The MSCI All-Country World Index retreated 0.5 percent, extending a five-day slump. The sell-off has wiped out at least $2.1 trillion from global stock market values since July 26, according to data compiled by Bloomberg. MSCI’s Asian index was headed for its biggest loss since March 15, as Japan’s Nikkei 225 Stock Average retreated 2.2 percent and South Korea’s Kospi index tumbled 2.7 percent.
New Recession
The S&P 500 plunged 2.6 percent yesterday, its biggest one- day loss in a year, after figures yesterday showed consumer spending decreased 0.2 percent and personal incomes grew at the slowest pace since November.
The economy now faces a 50 percent change of sliding into a new recession, Harvard’s Feldstein, a member of the Business Cycle Dating Committee of the National Bureau of Economic Research, said yesterday in an interview on Bloomberg Television’s “Surveillance Midday” with Tom Keene.
Factory orders probably declined 0.8 percent in June, following a 0.8 percent increase the previous month, while ADP Employer Services data may show companies in the U.S. added 100,000 workers last month, slowing from 157,000 in June, according to separate surveys by Bloomberg ahead of data today. Data may show on Aug. 5 payrolls climbed by 85,000, while the unemployment rate held at 9.2 percent.
Credit Rating
The U.S., rated Aaa since 1917, was placed on a negative outlook, New York-based Moody’s said in a statement yesterday as it confirmed the rating. Moody’s warned on July 29 a negative outlook was “more likely” as lawmakers reduced the size of spending cuts being negotiated to win approval on a plan to lift the nation’s borrowing limit.
China’s Dagong Global Credit Rating Co. cut the credit rating for the U.S. to A from A+ with a negative outlook, according to an e-mailed statement from Dagong today.
The ratings companies are “giving us a warning that unless things change, they will have to act,” Bret Barker, a portfolio manager at Los Angeles-based TCW Group Inc., which manages about $120 billion in assets, said in a Bloomberg Television interview. “Still, moving from AAA to AA+ isn’t that big of a deal. The markets are looking beyond that and focusing more on growth and Europe at this point.”
Default Risk
Ten-year Treasury yields fell two basis points, while two- year yields dropped one basis point to a record low of 0.3081 percent. Australian 10-year yields declined to as low as 4.57 percent, while the rate on similar-maturity Japanese bonds decreased 2.5 basis points to 1.015 percent.
The cost of insuring Asia-Pacific corporate and sovereign bonds against non-payment rose, with the Markit iTraxx Australia index advancing 4.5 basis points to 126 basis points, Westpac Banking Corp. prices show. The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan added four basis points to 123, Royal Bank of Scotland Group Plc prices show. Both measures are bound for the highest since July 18, according to data provider CMA.
The dollar gained 0.8 percent against the South Korean won, rose 0.6 percent versus Australia’s dollar and strengthened 0.7 percent against the Swiss franc. It traded at $1.4176 against the euro and rose 0.2 percent to 77.27 yen.
Oil, Gold
The euro earlier fell as much as 0.3 percent against the dollar. ECB policy makers are projected to leave the key interest rate unchanged at 1.5 percent tomorrow, according to economists surveyed by Bloomberg. Traders bet the ECB will increase its key rate by 20 basis points in the next 12 months, down from a forecast for 44 basis points at the end of 2010, according to a Credit Suisse Group AG index based on swaps.
Crude for September delivery in New York fell 0.5 percent to $93.41 a barrel, following a three-day, 3.8 percent tumble. Futures are set for the longest losing streak since May as investors bet the slowing U.S. economy may dent demand in the world’s biggest crude consuming nation.
U.S. crude inventories declined 3.31 million barrels to 354.9 million, the American Petroleum Institute said yesterday. The Energy Department, which is scheduled to release its inventory report today, may show stockpiles rose 1.5 million barrels last week, according to the median of 14 responses in a Bloomberg News survey.
Immediate-delivery gold retreated 0.5 percent to $1,653.30 an ounce. Bullion surged as much as 2.7 percent yesterday to an all-time high of $1,661.95.
To contact the reporters on this story: Shiyin Chen in Singapore at schen37@bloomberg.net; Yudith Ho in Singapore at yho29@bloomberg.net.
To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net
