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.
Monday, August 17, 2009
Japan emerges from recession but investors remain sceptical
Japan's economy has joined France and Germany in emerging from recession as the country's stimulus package gained some traction.
The economy, the world's second-biggest, recorded growth of 0.9pc in the three months to the end of June from the first quarter of the year. If Japan manages to sustain that rate for 12 months, the economy would enjoy expansion of 3.7pc.
The rebound in the economy was fuelled by Japan's key export markets, including China. Japan's neighbour is its biggest export market and saw growth of 7.9pc in the second quarter. Exports contributed 1.6pc to the quarter's growth, helping to offset other headwinds.
Japanese consumer confidence has also been buoyed by the 25 trillion yen stimulus package thrown at the economy by Prime Minister Taro Asa.
Despite Japan's technical emergence from recession, stock markets focused on the prospect that a robust recovery is unlikely. Tokyo's benchmark Nikkei 225 was down almost 3pc in late afternoon trading. Asian stock markets were also reacting to weak consumer confidence numbers released in the US last Friday.
“Growth was supported by stimulus packages and exports but it’s hard to believe they’ll both keep lifting the economy at this pace,” Takahide Kiuchi, chief economist at Nomura told Bloomberg. “We’re over the worst but Japan is in no condition to achieve a sustainable recovery.”
However, the second quarter's growth does bring to an end four straight quarters of expansion and may provide a political boost to Mr Asa, who faces a general election at the end of this month.
The economy, the world's second-biggest, recorded growth of 0.9pc in the three months to the end of June from the first quarter of the year. If Japan manages to sustain that rate for 12 months, the economy would enjoy expansion of 3.7pc.
The rebound in the economy was fuelled by Japan's key export markets, including China. Japan's neighbour is its biggest export market and saw growth of 7.9pc in the second quarter. Exports contributed 1.6pc to the quarter's growth, helping to offset other headwinds.
Japanese consumer confidence has also been buoyed by the 25 trillion yen stimulus package thrown at the economy by Prime Minister Taro Asa.
Despite Japan's technical emergence from recession, stock markets focused on the prospect that a robust recovery is unlikely. Tokyo's benchmark Nikkei 225 was down almost 3pc in late afternoon trading. Asian stock markets were also reacting to weak consumer confidence numbers released in the US last Friday.
“Growth was supported by stimulus packages and exports but it’s hard to believe they’ll both keep lifting the economy at this pace,” Takahide Kiuchi, chief economist at Nomura told Bloomberg. “We’re over the worst but Japan is in no condition to achieve a sustainable recovery.”
However, the second quarter's growth does bring to an end four straight quarters of expansion and may provide a political boost to Mr Asa, who faces a general election at the end of this month.
Asian Stocks Fall After U.S. Consumer Confidence Index Declines
Asian stocks dropped for the first time in three days after an unexpected decline in a U.S. consumer confidence index raised concern about the strength of a revival in global growth.
Sony Corp., the maker of Vaio computers and PlayStation 3 consoles, sank 3.7 percent. Nissan Motor Co., which generates a third of its revenue in the U.S., lost 2.3 percent in Tokyo. Nintendo Co., the world’s biggest maker of handheld game consoles, lost 2.2 percent after Credit Suisse Group AG cut its investment rating.
“Investors didn’t like the signs of weakness in the U.S. economic recovery last week,” said Tomochika Kitaoka, a senior strategist at Mizuho Securities Co. in Tokyo.
The MSCI Asia Pacific Index lost 1.3 percent to 112.76 as of 9:59 a.m. in Tokyo. The gauge has climbed 60 percent from a five-year low on March 9 on speculation stimulus policies and lower interest rates around the world will help revive the global economy.
Japan’s Nikkei 225 Stock Average fell 2 percent even as a government report showed the country’s economy grew for the first time in five quarters. Australia’s S&P/ASX 200 Index slipped 0.8 percent, while New Zealand’s NZX 50 Index declined 0.2 percent.
Futures on the Standard & Poor’s 500 Index sank 0.5 percent. It lost 0.9 percent on Aug. 14 after The Reuters/University of Michigan preliminary index of sentiment fell to 63.2 from 66 the month before. Economists had forecast an increase to 69, according to the average estimate in a Bloomberg News survey.
Rising Valuations
Better-than-estimated economic and earnings reports worldwide have driven the MSCI Asia Pacific Index’s rally since March, lifting the average valuation of its companies to 25 times estimated profit, more than the S&P 500 Index’s 16.8 times.
Mohamed El-Erian, co-chief investment officer of Pacific Investment Management Co., told CNBC on Aug. 14 current market valuations aren’t warranted by the economic outlook for 2010.
Sony, which gets 24 percent of its revenue in the U.S., sank 3.7 percent to 2,615. Nissan declined 2.3 percent to 712 yen. Honda Motor Co., Japan’s No. 2 automaker, fell 2.9 percent to 3,030 yen.
Exporters also fell as demand for safe-haven assets increased following the U.S. confidence report, helping the yen strengthen to as much as 94.43 versus the dollar, compared with about 95.27 at the close of trading in Tokyo on Aug. 14. A stronger yen lowers the amount of dollar-denominated sales when converted back into the Japanese currency.
Nintendo fell 2.2 percent to 24,870 yen in Osaka. Koya Tabata, an analyst at Credit Suisse Group in Tokyo, cut the shares to “neutral” from “outperform” as sales of the Wii game console are likely to be worse than previously forecast.
Sony Corp., the maker of Vaio computers and PlayStation 3 consoles, sank 3.7 percent. Nissan Motor Co., which generates a third of its revenue in the U.S., lost 2.3 percent in Tokyo. Nintendo Co., the world’s biggest maker of handheld game consoles, lost 2.2 percent after Credit Suisse Group AG cut its investment rating.
“Investors didn’t like the signs of weakness in the U.S. economic recovery last week,” said Tomochika Kitaoka, a senior strategist at Mizuho Securities Co. in Tokyo.
The MSCI Asia Pacific Index lost 1.3 percent to 112.76 as of 9:59 a.m. in Tokyo. The gauge has climbed 60 percent from a five-year low on March 9 on speculation stimulus policies and lower interest rates around the world will help revive the global economy.
Japan’s Nikkei 225 Stock Average fell 2 percent even as a government report showed the country’s economy grew for the first time in five quarters. Australia’s S&P/ASX 200 Index slipped 0.8 percent, while New Zealand’s NZX 50 Index declined 0.2 percent.
Futures on the Standard & Poor’s 500 Index sank 0.5 percent. It lost 0.9 percent on Aug. 14 after The Reuters/University of Michigan preliminary index of sentiment fell to 63.2 from 66 the month before. Economists had forecast an increase to 69, according to the average estimate in a Bloomberg News survey.
Rising Valuations
Better-than-estimated economic and earnings reports worldwide have driven the MSCI Asia Pacific Index’s rally since March, lifting the average valuation of its companies to 25 times estimated profit, more than the S&P 500 Index’s 16.8 times.
Mohamed El-Erian, co-chief investment officer of Pacific Investment Management Co., told CNBC on Aug. 14 current market valuations aren’t warranted by the economic outlook for 2010.
Sony, which gets 24 percent of its revenue in the U.S., sank 3.7 percent to 2,615. Nissan declined 2.3 percent to 712 yen. Honda Motor Co., Japan’s No. 2 automaker, fell 2.9 percent to 3,030 yen.
Exporters also fell as demand for safe-haven assets increased following the U.S. confidence report, helping the yen strengthen to as much as 94.43 versus the dollar, compared with about 95.27 at the close of trading in Tokyo on Aug. 14. A stronger yen lowers the amount of dollar-denominated sales when converted back into the Japanese currency.
Nintendo fell 2.2 percent to 24,870 yen in Osaka. Koya Tabata, an analyst at Credit Suisse Group in Tokyo, cut the shares to “neutral” from “outperform” as sales of the Wii game console are likely to be worse than previously forecast.
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