By Shiyin Chen - Nov 30, 2011 3:07 PM GMT+0700
Nov. 30 (Bloomberg) -- Anthony Crescenzi, executive vice president at Pacific Investment Management Co., talks about the global economy and financial markets. Crescenzi also discusses the U.S. and China's banking industries and real estate markets. He speaks from Newport Beach, California, with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)
Nov. 30 (Bloomberg) -- Ritesh Maheshwari, an analyst at Standard & Poor's in Singapore, talks about Asian banks' credit ratings. S&P upgraded ratings of Bank of China Ltd. and China Construction Bank Corp. to A from A- and maintained the A rating on Industrial & Commercial Bank of China Ltd., giving all three lenders higher grades than most big U.S. banks. Maheshwari speaks with John Dawson on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)
Global equities (MXAP) fell for the first time in three days and U.S. stock futures slid after Standard & Poor’s cut credit ratings on lenders from Bank of America Corp. to Goldman Sachs Group Inc. Copper and oil declined.
The MSCI All Country World Index lost 0.5 percent at 8:03 a.m. in London, snapping the steepest two-day gain this month, and the Stoxx Europe 600 Index sank 1 percent, the first drop in four days. S&P 500 Index futures dipped 0.8 percent. The euro weakened 0.3 percent against the dollar and decreased 0.2 percent versus the yen. Copper slumped as much as 2.2 percent and oil retreated from a two-week high in New York.
S&P’s downgrade of some of the world’s biggest lenders may pressure firms already grappling with slower economic growth and Europe’s mounting debt crisis. Euro-area finance ministers approved enhancements to the European Financial Stability Facility, while backing off setting a target for its firepower and seeking a greater role for the International Monetary Fund in fighting the debt crisis.
“Major banks are under pressure and this is happening globally because of the funding issues in Europe,” Anthony Crescenzi, executive vice president at Pacific Investment Management Co., said in a Bloomberg Television interview from Newport Beach, California. “Regulators will be sure to keep the fire under the feet of bankers to ensure that their balance sheets are fortress-like. This will keep pressure on earnings.”
An index of bank shares on the Stoxx 600 dropped 1.9 percent, the biggest decline among 19 industry groups. HSBC Holdings Plc (HSBA) retreated 1.5 percent and Barclays Plc dropped 2.3 percent in London, while UBS AG retreated 1.7 percent in Zurich. S&P cut HSBC to A+ from AA- and lowered UBS and Barclays to A from A+.
Bank Ratings
S&P 500 futures expiring in December dropped, signaling the U.S. gauge may halt a two-day rally, after Bank of America, its Merrill Lynch unit, Goldman Sachs, Citigroup Inc., and Morgan Stanley had their long-term credit grades cut to A- from A at S&P. JPMorgan Chase & Co. was also downgraded to A from A+, while Bank of China Ltd. and China Construction Bank Corp. were raised to A from A- by S&P.
Credit-default swaps on Bank of America, which were little changed before yesterday’s announcement, increased 16.9 basis points to 478.8 and those on Merrill Lynch climbed 24.1 to 524.9, according to data provider CMA. Contracts on Goldman Sachs increased 8 to 403.6.
EFSF’s Capacity
The cost of insuring Asia-Pacific corporate and sovereign bonds against non-payment climbed, with the Markit iTraxx Australia index rising three basis points to 214, according to Westpac Banking Corp. That’s set for its first increase since Nov. 25, according to data provider CMA, which is owned by CME Group Inc., and compiles prices quoted by dealers in the privately negotiated market.
“The rating cuts may have a negative impact on investor sentiment,” said Koji Toda, chief fund manager at Resona Bank Ltd. in Tokyo. “What investors are really paying attention to is whether policy makers are going to take steps to resolve the European debt situation.”
The MSCI Asia Pacific Index dipped 0.5 percent, extending its November drop to 7.5 percent, the third decline in four months. The Shanghai Composite Index sank 3.3 percent, the biggest drop since Aug. 8, after Xia Bin, an adviser to the People’s Bank of China, said the nation’s restructuring of its economy will depend on fiscal policy rather than on a loosening of monetary policies.
EFSF Capacity
The Dollar Index (DXY), which tracks the currency against those of six trading partners, rose 0.4 percent after retreating for two days. The 17-nation euro fell to $1.3270 and traded at 103.53 yen, compared with 103.77 yesterday.
European ministers agreed to expand the bailout fund’s capacity by “introducing sovereign bond practical risk participation and a co-investment approach.” The EFSF has a current lending capacity of 440 billion euros ($586 billion). Without knowing the exact amounts needed, EFSF should be able to leverage its own resources of up to 250 billion euros, the fund statement said. Europe’s finance ministers will meet again in Brussels today.
Economic reports today showed Japan’s industrial production increased more than analysts expected in October, Australia’s capital expenditure surged, and New Zealand home-building approvals climbed. U.S. pending home sales, or contract signings for existing homes, rose 2 percent in October after falling 4.6 percent the prior month, economists surveyed by Bloomberg News forecast the National Association of Realtors will report today.
Oil slipped as much as 0.8 percent to $98.96 a barrel in New York before trading at $99.09. Futures climbed yesterday to the highest level since Nov. 16 and are up 6.4 percent this month. Three-month copper dropped 2 percent to $7,342.25 a metric ton in London. Zinc slid 1.7 percent, nickel dropped 1.2 percent and lead retreated 1.4 percent.
To contact the reporter on this story: Shiyin Chen in Singapore at schen37@bloomberg.net
To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net
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