By Shiyin Chen and Shani Raja - Sep 22, 2011 11:31 PM PT
Asian stocks fell, extending their largest weekly loss since 2008, and metals declined as a pledge by Group of 20 nations to tackle rising risks failed to soothe concern the global economy is on the brink of another recession. U.S. and European index futures gained, while Treasuries fell.
The MSCI Asia Pacific excluding Japan Index slumped 2.2 percent as of 2:30 p.m. in Hong Kong. Standard & Poor’s 500 Index futures climbed 0.5 percent after a four-day drop and Euro Stoxx 50 contracts advanced 0.4 percent. The euro rose from near its lowest level in a decade against the yen. The won snapped a four-day slide after South Korea threatened intervention. Oil fell 0.6 percent in New York and copper declined 6.5 percent.
More than $3.4 trillion has been erased from equity values this week, driving global stocks into a bear market. G-20 officials said after talks in Washington they were “committed to a strong and coordinated international response to address the renewed challenges facing the global economy.” The European Central Bank may act to address risks to growth as soon as next month should economic data disappoint, Governing Council member Luc Coene said.
“It would be flippant to suggest this is just a blip,” said Tim Schroeders, who helps manage $1 billion in equities at Pengana Capital Ltd. in Melbourne. “The aggressive selling of equity markets seems to reflect a heightened probability that the world is moving toward a recession. There’s also a sense that policy makers globally are limited in their ability to alleviate the situation because of the need for fiscal austerity.”
Bear Market
The MSCI All-Country World Index slipped 0.3 percent, headed for its lowest close since July 2010. A 4.5 percent drop yesterday dragged the index down more than 20 percent from a May 2 close that was the highest since 2008, meeting some analysts’ definition of a bear market.
Almost six shares retreated for every one that gained on MSCI’s Asia excluding Japan Index. Japanese markets are shut for a holiday today. South Korea’s Kospi Index sank 5.7 percent, Taiwan’s Taiex Index tumbled 3.6 percent and Hong Kong’s Hang Seng Index dropped 1.9 percent.
Futures signal the S&P 500 may rebound from yesterday’s 3.2 percent drop. The gauge has dropped 7.1 percent this week after the Federal Reserve said on Sept. 21 it saw “significant downside risks” in the economy and it will replace $400 billion of short-term debt with longer-term Treasuries to spur growth. Treasury 10-year yields reached an all-time low of 1.70 percent yesterday.
G-20 Statement
The euro strengthened 0.2 percent to $1.3493, rebounding from a 0.8 percent drop yesterday. The shared currency climbed to 102.96 yen, the first gain in six days. It yesterday fell as low as 102.22, the least since 2001. The euro region committed in the G-20 statement to implement a pledge to expand the powers of a rescue fund by the time of the group’s next gathering, scheduled for Oct. 14-15.
French Finance Minister Francois Baroin and European Union Commissioner Olli Rehn yesterday called for officials to consider using leverage to increase the financial firepower of their regional bailout fund.
If the G-20 statement “is enacted, that’s a major, important step and that could provide a floor for risk appetite and for confidence,” said Callum Henderson, global head of foreign-exchange research at Standard Chartered Plc in Singapore. “The good news is the euro is not collapsing.”
Asian Intervention
The won closed 1.1 percent stronger at 1,167.31 per dollar, having been trading at a 0.9 percent loss two minutes before the end of today’s trading in Seoul. The currency tumbled 5.7 percent in the last four days and the finance ministry said today it would “take action” to stabilize the market to combat “excessive” recent moves.
Indonesia’s rupiah rose 1.5 percent after the nation’s central bank said yesterday it was supporting the currency. India’s rupee dropped to a two-year low after Finance Minister Pranab Mukherjee said two days ago the Reserve Bank of India was prepared to sell dollars.
The cost of protecting Asia-Pacific corporate and sovereign bonds from default fell, after surging yesterday to the highest levels in more than two years, according to traders of credit- default swaps.
The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan dropped four basis points to 230 basis points, Credit Agricole SA prices show. The gauge closed at 237.4 in New York yesterday, the highest since May 5, 2009, after the biggest jump since Feb. 17, 2009, according to CMA.
Three-month copper dropped 6.4 percent to $7,182 a metric ton, extending yesterday’s 7.5 percent tumble, the most since October 2008. Nickel dropped 8.4 percent to $17,300 a ton after plummeting as much as 17 percent yesterday and zinc declined 4.9 percent to $1,910.25. An index of six metals traded in London sank 6.4 percent yesterday, the most since May 4, 2010.
Oil fell to $80.17 a barrel on the New York Mercantile Exchange, after earlier gaining 1.6 percent to $81.81. Crude yesterday traded as low as $79.66.
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: James Regan at jregan19@bloomberg.net
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