European Stocks Drop; Yen Weakens to Six-Month Low
The yen slumped to a six-month low on expectations elections next month will hand power to the opposition which favors unlimited easing. European stocks fell on concern the U.S. fiscal cliff will curb growth, while German government bonds advanced.
The Japanese currency weakened at least 0.5 percent against all its 16 major peers as of 8:07 a.m. in London. The Stoxx Europe 600 Index dropped 0.6 percent while futures for the Standard & Poor’s 500 Index rose 0.2 percent. Japan’s Topix Index gained 2.1 percent, snapping five days of losses, as the MSCI Asia Pacific ex-Japan Index lost 1.2 percent. German 10- year bund yields approached an almost 11-week low.
Shinzo Abe, who’ll probably become Japan’s premier after the election, called on the central bank to adopt unlimited easing, saying it shouldn’t wait to add stimulus. The German and French economies grew 0.2 percent in the third quarter from the previous period, beating estimates, data showed. President Barack Obama meets Democratic and Republican congressional leaders tomorrow for talks to avoid $607 billion in tax increases and spending cuts that may spur a recession.
“A government led by the Liberal Democratic Party is expected to win,” said Mitsushige Akino, who oversees about $600 million at Ichiyoshi Investment Management Co. in Tokyo. “Investors believe that will add pressure on the Bank of Japan to ease policy, and the government will adopt strong policies to get the economy out of deflation.”
The yen fell 0.8 percent to 80.86 against the dollar and 0.8 percent versus the euro. The drop extended its two-day decline against the greenback to as much as 2 percent, the most in a year. Polls showed the Dec. 16 election will favor Abe, who said today the central bank’s benchmark rate should be lowered to zero or below and pledged to raise public spending.
Japan’s Nikkei 225 Stock Average gained 1.9 percent even as Sony Corp. fell as much as 11 percent to the lowest in more than 32 years in Tokyo after offering its first convertible bonds in almost a decade. South Korea’s Kospi Index dropped 1.2 percent, its lowest close since Aug. 3. Hong Kong’s Hang Seng Index lost 1.5 percent and Australia’s S&P/ASX 200 Index fell 0.9 percent.
BHP Billiton (BHP) Ltd., the world’s largest mining company, fell 1.8 percent in Sydney. Tencent Holdings Ltd., China’s biggest Internet company, dropped 5 percent in Hong Kong after earnings missed estimates.
The 17-nation euro strengthened to 103.02 yen and was little changed at $1.2744. Advance estimates for the euro region due today will probably show gross domestic product fell 0.1 percent in the three months through September from the previous period, according to the median economist forecast in a Bloomberg News survey.
Obama said in a press conference yesterday that voters sent a “very clear message” on Nov. 6 that they want both parties to stop bickering and take the necessary action to cut the budget deficit. His comments spurred concern that lawmakers weren’t making progress on negotiations.
“You have this negative feedback loop continuing that really does affect both consumer consumption, personal confidence, as well as business investment,” Wayne Bowers, chief executive officer for Asia-Pacific and Europe at Northern Trust Global Investments, which has about $750 billion in assets under management, said in a Bloomberg TV interview. “Investors need more clarity.”
U.S. 10-year notes yielded 1.59 percent, Bloomberg Bond Trader data show, 21 basis points from the record low of 1.38 percent set July 25, before a U.S. report economists said will show the cost of living increased in October at the slowest pace in three months.
A number of Federal Reserve officials said the central bank may need to expand its monthly purchases of bonds next year after the expiration of Operation Twist, according to minutes of their last meeting. Under Operation Twist, scheduled to end in December, the Fed is swapping short-term Treasuries on its balance sheet for longer-term debt.
Oil was little changed at $86.28 a barrel in New York, trading near the highest level in more than a week after an Israeli attack on the Gaza Strip raised concern Middle East unrest will disrupt supplies. Air strikes killed Ahmed al- Jabari, the leader of Hamas’s military wing, according to the Israel Defense Forces.
Xi Jinping replaced Hu Jintao as head of the Chinese Communist Party and the nation’s military, ushering in the fifth generation of leaders who are set to run the world’s second- biggest economy over the next decade. He’s joined on the elite Politburo Standing Committee by Li Keqiang, whose new party rank indicates he will replace Premier Wen Jiabao at a March meeting.
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