By Stephen Kirkland - Nov 1, 2011 9:24 PM GMT+0700
Nov. 1 (Bloomberg) -- Hans Goetti, the Singapore-based chief investment officer for Asia at Finaport Investment Intelligence, talks about the outlook for global financial markets and his investment strategy. Goetti also discusses the G-20 summit to be held in Cannes, France. He speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)
Nov. 1 (Bloomberg) -- Russ Koesterich, the San Francisco-based global chief investment strategist for the IShares unit of BlackRock Inc., talks about the impact of Europe's debt deal on global stocks and his investment strategy. Stocks retreated from an almost three-month high as Italian and Spanish bonds fell amid concern European leaders will struggle to raise funds to contain the region’s debt crisis. Koesterich speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)
Stocks sank, while a surge in German bunds sent yields down the most on record, as Greek Prime Minister George Papandreou’s plan to hold a referendum on Europe’s bailout fueled concern the debt crisis will worsen. The Dollar Index extended its biggest two-day rally in three years.
The MSCI All-Country World Index retreated 3.2 percent at 10:22 a.m. in New York, with gauges in Italy, France and Germany sliding at least 4.4 percent. The Standard & Poor’s 500 Index lost 2.2 percent. German 10-year yields fell as much as 26 basis points to 1.77 percent. Rates on 10-year Italian and French debt reached euro-era records above benchmark German bunds. The euro fell 1.4 percent to $1.3664, a three-week low. Copper lost 3.5 percent and oil decreased 2.9 percent to pace losses in commodities after China’s manufacturing growth cooled.
Greece’s referendum poses a threat to financial stability in the euro region and increases the risk of a “disorderly” default, Fitch Ratings said. Papandreou’s grip on power weakened before a confidence vote on Nov. 4 as six senior members of the ruling party called on the prime minister to step down, state- run Athens News Agency reported, without citing anyone.
“The risk of a Lehman-style disorderly default now looms a bit larger than before, including some residual risk that Greece may leave the euro zone if it rejects the offer of orderly debt relief in exchange for harsh new spending cuts and reforms,” Holger Schmieding, chief economist at Joh. Berenberg Gossler & Co. in London, wrote in a note. “This could be negative for markets for equities and other risk assets. It could exacerbate potential financial turbulence and the euro-zone recession.”
Banks Retreat
The S&P 500 extended yesterday’s 2.5 percent retreat and is down 4.6 percent so far this week. The index surged 3.8 percent last week, capping a 17 percent rebound from a 13-month low on Oct. 3, after European officials agreed on enhancing the region’s bailout fund.
Gauges of energy, commodity and financial shares slid at least 3.5 percent to lead losses in the S&P 500 today as all 10 of the index’s main industry groups sank at least 1.1 percent.
JPMorgan Chase & Co., Caterpillar Inc. and Hewlett-Packard Co. lost at least 4.3 percent for the biggest declines in the Dow Jones Industrial Average. Jefferies Group Inc. fell as much as 14 percent as investors renewed their focus on Europe’s financial crisis, prompting the investment bank to say it has “no meaningful exposure” to debt issued by Portugal, Italy, Ireland, Greece and Spain.
MF Global Probe
U.S. regulators are investigating whether hundreds of millions of dollars are missing from client accounts at MF Global Holdings Ltd. (MF), according to two people with knowledge of the matter. The firm filed for bankruptcy protection yesterday after wagering $6.3 billion of its own money on European sovereign debt. MF Global was ordered by the enforcement division of the Commodity Futures Trading Commission to preserve records for the review, one of the people said.
Manufacturing in the U.S. expanded less than forecast in October as inventories shrank by the most in a year and production cooled. The Institute for Supply Management’s factory index dropped to 50.8 last month from 51.6 in September. A reading of 52 was the median forecast in a Bloomberg News survey of economists. Fifty is the dividing line between growth and contraction.
The Stoxx Europe 600 Index declined 3.4 percent, the biggest drop in six weeks. Greece’s ASE Index slid as much as 7.5 percent, the most in three years on a closing basis. The National Bank of Greece SA, Banco Comercial Portugues SA and France’s Societe Generale SA and Credit Agricole SA tumbled more than 10 percent. Credit Suisse Group AG (CSGN) sank 7.6 percent after the Swiss bank reported earnings that missed analysts’ estimates.
Bond Spreads
Yields on Italian 10-year debt surged to as much as 4.55 percentage points above German bunds, while French rates climbed to 1.23 percentage points above. The Belgian-German 10-year yield spread widened to a euro-era record 263 basis points. Greek two-year note yields surged as much as 7.34 percentage points to a record 85.08 percent.
The yield on Sweden’s 10-year bond dropped 23 basis points to 1.72 percent, and Norway’s yield slid 18 basis points to 2.52 percent. Sweden and Norway aren’t part of the euro area.
The euro depreciated 1.3 percent to 106.97 yen, while Japan’s currency was little changed at 78.25 per dollar. The Australian dollar weakened versus 15 of its 16 major peers, falling 1.9 percent to $1.0330.
Dollar Rallies
The Dollar Index, a gauge of the currency against six major peers, climbed 1.6 percent to 77.37 and is up 3.1 percent in two days.
The cost of insuring against default on sovereign debt surged the most in almost four months with the Markit iTraxx SovX Western Europe Index of credit swaps linked to 15 governments jumping 30 basis points to 334 basis points. Contracts on Italy soared 46 to 498 basis points, France was up 16 at 192 and Germany climbed 10 to 94 basis points.
Greece’s proposed referendum poses a threat to the region’s financial stability, Fitch Ratings said. Group of 20 leaders gather Nov. 3-4 for a summit in Cannes, France, to discuss the debt crisis.
The MSCI Emerging Markets Index declined 2.9 percent and is down 4.3 percent in two days. The Hang Seng China Enterprises Index slid 3.1 percent. Benchmark stock indexes fell at least 3 percent in Russia, Turkey, and the Czech Republic. The ruble weakened 1.9 percent against the dollar and South Africa’s rand slid 2.7 percent.
Commodities sank amid signs of weakening growth in Asia. China’s manufacturing, South Korean exports and Taiwan’s economy all expanded at the slowest pace since 2009, adding to concern global economic growth may falter. The China Purchasing Managers’ Index fell to 50.4 last month, lower than the 51.8 estimate in a Bloomberg survey of 16 economists.
Aluminum lost 4 percent, leading all 24 commodities in the S&P GSCI index lower. Oil in New York dropped for a third day, falling to $90.47 a barrel. China is the biggest energy user and largest buyer of industrial metals.
To contact the reporter on this story: Stephen Kirkland in London at skirkland@bloomberg.net
To contact the editor responsible for this story: Stuart Wallace at swallace6@bloomberg.net
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