Asian stocks slumped, dragging the region’s benchmark index to a fourth weekly loss, while oil led commodities lower amid concern the U.S. recovery is faltering and Europe’s debt crisis will spread. Bonds and credit-default risk climbed, while gold rallied to a record.
The MSCI Asia Pacific Index fell 2.6 percent at 1:06 p.m. in Tokyo. Standard & Poor’s 500 Index futures slid 0.8 percent. The yen rose against 15 of its 16 major peers. Treasury 10-year yields decreased three basis points to 2.03 percent, and yields on similar-maturity Japanese bonds retreated to the lowest this year. The Markit iTraxx Australia index, which measures the cost of insuring bonds, headed for its highest level since July 2009. Crude sank 1.5 percent, while gold advanced for a fifth day.
Citigroup Inc. cut its forecasts for expansion in the world’s largest economy, while Morgan Stanley lowered targets for stock indexes in Indonesia and Singapore. Regulators from the U.S., South Korea and Sweden said the market turmoil posed further risks to growth, after data yesterday showed American jobless claims rose and a measure of manufacturing contracted.
“There’s a total lack of confidence in policy makers’ ability to defuse the situation,” said Nader Naeimi, a Sydney- based strategist for AMP Capital Investors Ltd., which manages almost $100 billion. “Fear is breeding fear now.”
More than 11 shares retreated for each one that advanced on the 1,018-member MSCI Asia Pacific Index, which is headed for a 1.6 percent weekly loss. The four-week losing streak will be the longest stretch of declines since the period ended June 17.
Stocks Slump
Japan’s Nikkei 225 Stock Average dropped 1.9 percent and Australia’s S&P/ASX 200 Index retreated 2.8 percent. The Kospi Index sank 5.1 percent in South Korea, where the exchange halted program trading of shares amid a plunge in futures. Billabong International Ltd. (BBG) sank 23 percent in Sydney after the surf-wear maker scrapped its earnings forecast and posted lower-than- estimated profit.
Futures expiring in September signal the S&P 500 may extend yesterday’s 4.5 percent slump. Shares of Hewlett-Packard Co. (HPQ), the world’s largest computer maker, added to stock losses in extended trading after the company agreed to buy software maker Autonomy Corp. for $10.3 billion and will weigh a breakup that would unravel the purchase of Compaq Computer Corp. Hewlett- Packard had earlier cut its full-year profit forecast.
“The massive exodus from risk markets reflects heightened concerns with a possible recession and the accelerated loss of trust in policy makers,” Mohamed El-Erian, chief executive officer and co-chief investment officer at Pacific Investment Management Co., the world’s biggest manager of bond funds, wrote in an e-mail yesterday.
The S&P 500 has tumbled 16 percent from its April high, about the same as the retreat between April 23 and July 2, 2010, previously the biggest contraction of the bull market that began in March 2009. Citigroup cut its U.S. gross domestic product growth estimate to 1.6 percent in 2011 from 1.7 percent, and lowered its forecast for 2012 to 2.1 percent from 2.7 percent.
U.S. Weakness
U.S. initial jobless claims climbed by 9,000 to 408,000 in the week ended Aug. 13, topping the median estimate of economists surveyed by Bloomberg for a rise to 400,000. The Fed Bank of Philadelphia’s general economic index unexpectedly plunged to minus 30.7, the lowest level since March 2009, just a day after the bank’s President Charles Plosser said the U.S. economy is growing and doesn’t need exceptional measures.
Consumer confidence in the U.S. economic outlook slumped in August to the lowest level since the recession, raising the risk that spending will dry up. The Bloomberg Consumer Comfort Index’s monthly expectations gauge dropped to minus 34, the weakest since March 2009, from minus 22 in July.
“Every indicator is worse than it was three, six months ago,” Jason Brady, a managing director at Sante Fe, New Mexico- based Thornburg Investment Management Inc., which oversees $84 billion, said in a Bloomberg Television interview. “The markets are trying to price in the growing possibility that we may be in recession.”
‘Unintended Consequences’
Federal Reserve Bank of Dallas President Richard Fisher said the central bank’s pledge to keep the benchmark U.S. interest rate near zero through at least mid-2013 may lead to “unintended consequences” and hurt growth.
“Now you know that you can wait to borrow because rates are going to be locked in at very low levels for a two-year period,” the regional bank chief said yesterday in an interview with CNBC. “This might well further retard the recovery.”
Ten-year Treasury yields fell as much as 19 basis points to 1.97 percent yesterday before trimming losses. Thirty-year Treasury yields fell six basis points to 3.36 percent today, adding to a three-day, 35 basis-point drop. Japanese government bonds also rose, driving the yield on the benchmark 10-year security down 1.5 basis points to 0.97 percent, the lowest level this year.
Default Risk
The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan rose 11 basis points to 157, according to Royal Bank of Scotland Group Plc prices. That would be the highest level since May 2010, according to CMA. The Markit iTraxx Australia index rose 13 basis points to 163 basis points, Westpac Banking Corp. prices show.
The yen rose to 109.49 per euro from 109.76 in New York yesterday, set for a fourth day of gains. The dollar climbed 0.2 percent to $1.4310 against the euro, after a 0.7 percent rally yesterday, and strengthened 0.3 percent to $1.0360 against its Australian counterpart.
The South Korean won weakened 0.8 percent to 1,082.30 per dollar after the Financial Supervisory Service’s Governor Kwon Hyouk Se asked the nation’s insurance companies to expand capital on concern the market rout will erode their finances.
Swiss Loan
The Fed lent Switzerland’s central bank $200 million in a program aimed at easing credit strains in Europe, the New York Fed reported yesterday. The transaction was the first time the program has been used since March, when the European Central Bank tapped $70 million. The ECB said on Aug. 17 it will lend dollars for the first time in six months after one bank took up its weekly offer.
“It won’t take much for the interbank market to collapse,” Lars Frisell, chief economist at Sweden’s financial regulator, said yesterday in an interview in Stockholm. “It’s not that serious at the moment but it feels like it could very easily become that way and that everything will freeze.”
Crude for September delivery lost 1.5 percent to $81.18 a barrel on the New York Mercantile Exchange. Futures slumped 5.9 percent yesterday. Brent oil for October settlement fell 0.6 percent to $106.35 a barrel on the London-based ICE Futures Europe exchange.
S&P’s GSCI Index of 24 commodities slipped 0.6 percent and is little changed this year, compared with an 11 percent drop on the MSCI All-Country World Index of equities.
Immediate-delivery gold jumped as much as 1.2 percent to a record $1,844.95 an ounce. Bullion is up 5.4 percent for the week. That’s the seventh straight weekly gain, the longest winning streak since 2007.
To contact the reporters on this story: Shiyin Chen in Singapore at schen37@bloomberg.net; Shani Raja in Sydney at sraja4@bloomberg.net
To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net
