By Claudia Carpenter - Oct 18, 2011 6:14 PM GMT+0700
Stocks fell and France’s two-year notes declined after Moody’s Investors Service signaled the nation’s Aaa rating is at risk. Copper led commodities lower as China’s economy grew at the slowest pace in two years.
The MSCI All-Country World Index dropped 1 percent at 12:12 p.m. in London. Standard & Poor’s 500 Index futures slipped 0.3 percent. The yield on the French two-year note rose as much as 20 basis points, the biggest jump since May 20. The extra yield investors demand to hold French 10-year bonds instead of benchmark German bunds surpassed 100 basis points for the first time since the euro was introduced. The euro weakened 0.4 percent versus the dollar. Copper fell 2.9 percent.
The European debt crisis has left France with “less room for maneuver in terms of stretching its balance sheet than it had in 2008,” Moody’s said yesterday. China’s economy expanded 9.1 percent last quarter, trailing the 9.3 percent forecast in a Bloomberg News survey. Goldman Sachs Group Inc. and Coca Cola Co. are due to report earnings today.
“When the Far East slows, there are bigger knock-on effects on the western world,” said Stephen Gallo, head of market analysis at Schneider Foreign Exchange in London. “We’re looking at the deep, dark abyss down below because we don’t have the monetary or fiscal flexibility to stimulate growth.”
BHP, Rio
The Stoxx Europe 600 Index retreated 0.9 percent as four stocks fell for each one that gained. BHP Billiton Ltd. and Rio Tinto Group, the world’s largest mining companies, sank more than 2 percent. Air France-KLM Group slid 3.6 percent after Pierre-Henri Gourgeon was ousted as chief executive officer.
S&P 500 futures declined as much as 0.5 percent and climbed 0.2 percent. International Business Machines Corp. (IBM), the world’s fifth-largest company by market value, dropped 4.2 percent in German trading after third-quarter sales of $26.2 billion missed the average analyst prediction of $26.3 billion in a Bloomberg survey. Johnson & Johnson is also due to release quarterly earnings before trading starts in New York.
The yield on the French 10-year bond advanced five basis points, while the German bund yield fell six basis points, widening the spread between the two securities by as much as 106 basis points. The CAC 40 Index slid 1.7 percent as BNP Paribas SA and Societe Generale SA, France’s biggest banks, lost more than 5 percent.
The 10-year U.S. Treasury note yield slipped three basis points, falling for the second day.
U.S. ‘Shortfalls’
Federal Reserve Bank of Chicago President Charles Evans said yesterday that the U.S. faces “massive shortfalls” in output and job creation and called for policy steps to ensure the Fed meets its mandate to promote maximum employment while limiting inflation.
The 53-year-old regional bank chief reiterated his proposal to keep the target for the benchmark U.S. interest rate near zero until either unemployment falls below 7 percent or the medium-term inflation outlook rises above 3 percent. He said he would support more asset purchases if those objectives aren’t reached. Fed speakers today include Chairman Ben S. Bernanke and Boston Fed President Eric Rosengren.
The euro depreciated 0.7 percent versus the yen, after falling 1.5 percent yesterday, and weakened 0.3 percent against the pound. Sterling slipped 0.2 percent to $1.5711, falling for the second day. A report showed U.K. inflation accelerated to match a record high in September, a surge Bank of England policy makers set aside as they shifted their focus to combating the threat of another recession.
U.K. Prices
Consumer prices rose 5.2 percent from a year earlier, compared with 4.5 percent in August, the Office for National Statistics said in London today. That matched the record high reached in September 2008, which was the highest since comparable records began in 1997.
Credit-default swaps insuring French sovereign debt rose 11 basis points to 193, approaching a record-high 202.5 reached on Sept. 22. The Markit iTraxx SovX Western Europe Index of contracts on 15 governments climbed four basis points to 338.
The yield on the Greek bond due in June 2020 jumped 25 basis points to 24.24 percent, with the price falling to less than 37 percent of face value. The similar-maturity Irish yield rose 10 basis points, increasing for the fourth consecutive day.
Portugal’s 10-year yield jumped five basis points, climbing for the eighth successive day, after the government forecast the economy will contract more than previously estimated next year as it implements more spending cuts to meet budget deficit targets. Spain’s two-year note yield increased 12 basis points, rising for the sixth day.
The MSCI Emerging Markets Index fell 2.2 percent, following a nine-day, 13 percent surge that was its longest-winning streak since June 2010. The Hang Seng China Enterprise Index of Chinese companies listed in Hong Kong tumbled 5.2 percent and the Shanghai Composite Index fell 2.3 percent, the most in almost a month. The Bombay Stock Exchange Sensitive Index, or Sensex, slid 1.6 percent in Mumbai.
Copper dropped for a second day, declining to $7,279 a metric ton and zinc fell 2.1 percent to $1,865.75 a ton. China is the world’s biggest user of industrial metals.
To contact the reporter on this story: Claudia Carpenter in London at ccarpenter2@bloomberg.net
To contact the editor responsible for this story: Justin Carrigan at jcarrigan@bloomberg.net
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