Stocks fell around the world, led by China, while the yen and the dollar advanced and Treasuries rose as investors speculated that a rally in riskier assets has outpaced the prospects for economic growth.
The MSCI World Index of 23 developed nations sank 1.7 percent at 12:55 p.m. in London, the biggest retreat in a month. Futures on the Standard & Poor’s 500 Index slid 2.3 percent, while China’s Shanghai Composite Index slumped the most since November. The yen strengthened against all 16 of the most-traded currencies tracked by Bloomberg, while the dollar advanced against every one except the yen. The yield on the benchmark 10- year Treasury note dropped to its lowest level this month. Copper and oil declined for a second day.
Equities tumbled after foreign direct investment in China fell, Yunnan Copper Industry Co. said there were “no clear signs” of a recovery and Japan’s economy grew less than economists estimated, reigniting concern that a five-month, 52 percent rally in the MSCI World was overdone. The tally of failed U.S. banks this year climbed to 77 last week, while the Reuters/University of Michigan index of consumer sentiment in America showed an unexpected decrease.
“The rally in risk assets has become overextended as it has run ahead of the improvement in fundamentals,” Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London, wrote in an e-mailed report. “The dollar and yen have been boosted by a pickup in safe-haven demand.”
European Stocks
The Dow Jones Stoxx 600 Index of European shares retreated 2.4 percent, the biggest drop in a month. A 41 percent rebound since March 9 has left the regional measure valued at 40.2 times the profits of its companies, near the most expensive since 2003, data compiled by Bloomberg show.
Raw-materials shares declined with metals and oil. Rio Tinto Group, the world’s third-largest metals producer, decreased 5.1 percent in London. Swedbank AB decreased 4.9 percent in Stockholm. The Baltic region’s biggest bank announced a second rights offer in less than a year as it seeks to shore up reserves and exit the Swedish state’s bank support plan. The lender faces soaring loan losses and provisions in Latvia, Lithuania and Estonia.
Lowe’s Cos. slid 11 percent in pre-market New York trading after the second-largest U.S. home-improvement retailer reporting second-quarter profit that missed analysts’ estimates.
The world’s biggest pension funds have lost confidence in stocks as the best long-term investment, cutting holdings or leaving them unchanged during the steepest rally since the 1930s. Funds overseeing money for California teachers and public workers, Dutch government retirees and South Korean private- sector employees reduced their target weightings for equities this year, data compiled by Bloomberg show.
Japan’s Economy
The MSCI Asia Pacific Index lost 3.3 percent, the steepest decline since March. Japan’s gross domestic product expanded at an annual 3.7 percent pace in the three months ended June 30, missing the median estimate for a 3.9 percent increase in a Bloomberg News survey. Sony Corp., the maker of the PlayStation 3 game console, retreated 4.1 percent in Tokyo.
Confidence in the world economy surged to a 22-month high in August on signs the first global recession since World War II is approaching an end, a Bloomberg survey of users on six continents showed last week.
The U.S. unemployment rate dropped in July for the first time since April 2008, data from the Labor Department showed this month, while the German and French economies unexpectedly grew last quarter, government figures indicated last week.
Emerging Markets
China’s Shanghai Composite Index sank 5.8 percent, the steepest slump since Nov. 18, as Ping An Insurance (Group) Co.’s profit missed estimates.
Ping An, China’s second-biggest insurance company, fell 3.9 percent after first-half net income dropped 45 percent. Yunnan Copper sank 10 percent after posting a first-half loss.
The MSCI Emerging Markets Index declined 3.3 percent, the steepest drop since March. Russia’s ruble weakened 2 percent against the dollar and depreciated 1.1 percent against the euro.
The yen advanced the most against the Australian dollar, strengthening 2.5 percent as demand for higher-yielding currencies waned, and rose 1.5 percent versus the euro. The pound slid 1.6 percent against the dollar on growing evidence the U.K.’s sputtering economy is halting the currency’s biggest five-month rally in 24 years.
U.S. Bonds
Gains for Treasuries sent the yield on the benchmark 10- year note down 10 basis points to 3.47 percent. The 30-year yield lost 7 basis points to 4.35 percent.
The cost of protecting European corporate bonds from default rose to the highest since July 23 in the market for credit-default swaps. The Markit iTraxx Europe index of 125 companies with investment-grade ratings rose 4.25 basis points to 99, according to JPMorgan Chase & Co. prices.
Copper for delivery in three months fell 2.9 percent to $6,065 a metric ton on the London Metal Exchange. Aluminum, nickel and zinc also declined. Crude oil retreated 2.3 percent to $65.93 a barrel in New York. Gold fell 1.3 percent to $936.10 an ounce, leading a decline in precious metals.
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