Japanese stock futures declined after Standard & Poor’s Ratings Services cut the U.S. government’s credit rating, damping the outlook for Asia’s banks and exporters.
American depositary receipts of Mitsubishi UFJ Financial Group Inc. (8306), Japan’s largest bank by market capitalization, fell 0.9 percent. Those of Sony Corp. (6758), a consumer electronics exporter that earns about 40 percent of its revenue from the U.S. and Europe, lost 1 percent. New Zealand’s NZX 50 Index, the first market to open in the Asia-Pacific region today, lost 3.1 percent in Wellington, set for the biggest drop since October 2008 and dragging the benchmark down by more than 11 percent from its May 20 high.
Futures on Japan’s Nikkei 225 (NKY) Stock Average expiring in September were bid in the pre-market at 9,200 in Osaka at 8:05 a.m. local time today. That compared with 9,140 in Chicago today and 9,280 at the close in Osaka on Aug. 5. Futures on Australia’s S&P/ASX 200 Index fell 0.1 percent.
The U.S. downgrade “has added another significant issue for the global economy and stock markets to overcome,” said Tim Schroeders, who helps manage $1 billion in equities at Pengana Capital Ltd. in Melbourne. “The risks remain to the downside for economic growth, with a re-pricing of U.S borrowings likely to impose a higher cost of capital in the future.”
U.S. Credit Rating
Standard & Poor’s lowered the U.S.’s AAA credit rating on Aug. 5 by one level, to AA+, in response to the deal that President Barack Obama and lawmakers reached to raise the federal $14.3 trillion debt limit.
The dollar fell to a record low against the Swiss franc and declined for a second day versus the yen. The U.S. currency depreciated to as low as 77.58 yen today in Tokyo, compared with 78.50 at the close of stock trading on Aug. 5, cutting the value of some overseas income at Japanese companies when repatriated.
Japan’s yen may strengthen beyond 70 against the dollar as a likely campaign of government intervention proves ineffective, former Finance Ministry official Eisuke Sakakibara said on TV Asahi yesterday.
Group of Seven finance officials will talk today by conference call as policy makers seek to avert turmoil from Europe’s sovereign-debt crisis and the cut in the U.S. credit rating.
U.S. Treasury Secretary Timothy F. Geithner will take part in a G-7 conference call, according to an official from a G-7 country who declined to be identified for lack of authorization. Finance ministers and central bankers are preparing a statement, and they may express confidence in the dollar and support the European Union’s fiscal efforts, the Nikkei newspaper reported.
U.S. Stock Market
Futures on the Standard & Poor’s 500 Index sank as much as 3.1 percent today. In New York, the S&P 500 slid 0.1 percent on Aug. 5, after swinging between a loss of 2.7 percent and a gain of 1.5 percent. The credit-rating cut was announced after the market closed in New York.
American employers added more jobs than forecast in July and wages climbed. Payrolls rose by 117,000 workers after a 46,000 increase in June that was larger than earlier estimated, the Labor Department said on Aug. 5. The median estimate in a Bloomberg News survey called for a gain of 85,000. The jobless rate dropped to 9.1 percent as discouraged workers left the labor force. Average hourly earnings climbed 0.4 percent.
U.S. stocks reversed gains on Aug. 5 on speculation that S&P would cut the U.S. credit rating, and erased losses as Italian Prime Minister Silvio Berlusconi, speaking at a Rome press conference, vowed to balance the budget and impose austerity faster than planned as investors flee Italian bonds. The moves may pave the way for the European Central Bank to try to bring down Italy’s borrowing costs by buying its bonds in secondary markets.
Crude oil for September delivery gained declined as much as 3.5 percent today. The London Metal Exchange Index of prices for six metals including copper and aluminum sank 3.7 percent on Aug. 5, the biggest drop since May 5.
The MSCI Asia Pacific Index lost 8.4 percent this year through Aug. 5, compared with drops of 4.6 percent by the S&P 500 and 13.4 percent by the Stoxx Europe 600 Index. Stocks in the Asian benchmark are valued at 12.6 times estimated earnings on average, compared with 12 times for the S&P 500 and 9.8 times for the Stoxx 600.
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