Asian index futures fell after U.S. stocks dropped by the most in three weeks, while wheat futures entered a bear market. New Zealand’s dollar jumped to a three-week high after its central bank raised interest rates.
Futures on the Nikkei 225 Stock Average futures slumped 0.7 percent in Osaka, while contracts on Australia’s S&P/ASX 200 Index declined 0.3 percent. The yen gained before the Bank of Japan starts a meeting today. Standard & Poor’s 500 Index futures were little changed by 7:27 a.m. in Tokyo after the U.S. gauge declined 0.4 percent yesterday. Ten-year Treasuries rose in New York for the first time in four days. Iraq’s 2028 Eurobond slid the most in a year after fighters from a breakaway al-Qaeda group took control of Mosul.
New Zealand’s dollar climbed at least 0.6 percent against 31 major peers after the Reserve Bank raised interest rates for the third time this year and signaled more tightening to come. Stocks dropped after the World Bank cited a weaker outlook for the U.S., China and Russia yesterday as it lowered the forecast for global growth to 2.8 percent from 3.2 percent in January.
“Risks refuse to moderate,” said Andrew Wilkinson, the Greenwich, Connecticut-based chief market analyst at Interactive Brokers LLC. “As U.S. markets recoil from record highs, we’re pretty sure we can hear investors complain that this isn’t the way the recovery was supposed to work.”
Reserve Bank of New Zealand Governor Graeme Wheeler said a rebuild in earthquake-hit Christchurch and elevated commodity prices are fueling economic growth. He raised the developed world’s highest benchmark borrowing cost to 3.25 percent from 3 percent and said there’s a need to contain inflation expectations.
“This was a much more hawkish outcome than the market had expected” from the RBNZ, said Imre Speizer, a market strategist at Westpac Banking Corp. in Auckland. Gains in New Zealand’s currency and interest-rate swaps will probably be sustained, he said.
The Dow Jones Industrial Average dropped 0.6 percent and the S&P 500 slipped as investors considered equity valuations. The S&P gauge trades at 16.4 times the projected earnings of its members, up from a multiple of 14.8 -- its lowest valuation this year -- at the beginning of February. The gauge has rallied 12 percent since then.
Investors are also considering the long-range market repercussions after U.S. House Majority Leader Eric Cantor lost to a Tea Party-backed candidate in yesterday’s primary in Virginia, fueling concern that gridlock will intensify in Washington. The seven-term House veteran was an ally for Wall Street on issues ranging from the 2008 Troubled Asset Relief Program to defending the Export-Import Bank.
“There were very few folks who expected this,” said Michael Block, chief strategist at New York-based Rhino Trading Partners LLC. “I’m not concerned about the debt ceiling, but some are and I will say Cantor was good at finding compromises relative to the rest of the party.”
Since Republicans took control of the House in 2011, debates over the debt limit led to 11th-hour showdowns that raised concerns that the government could default on its obligations, roiling financial markets. Congress voted in February to suspend the limit until March 15, 2015.
Cantor’s defeat raises concerns about the future of political compromise, said Goldman Sachs Group Inc. Chief Executive Officer Lloyd Blankfein.
“I hope it doesn’t mean that it will be impossible from this point forward to compromise on issues like the budget, immigration policy,” Blankfein said in a television interview with CNBC today. “This is not necessarily a good signal, but we’ll have to see how this plays out.”
Boeing Co. sank 2.3 percent, the most in two months, as Cantor’s defeat threatened congressional reauthorization of low-cost lending that benefits the world’s largest plane maker. Boeing is the “biggest loser” other than Cantor because of the debate surrounding the Export-Import Bank, Guggenheim Securities LLC policy analyst Chris Krueger said in an e-mail.
Bank of America Corp. dropped 2.1 percent after a report said the Justice Department may seek $17 billion to settle probes into mortgage lending. Hilton Worldwide Holdings Inc. slid 2.7 percent after registering to sell 90 million shares held by Blackstone Group LP. CBS Corp. added 1.1 percent after saying it will fully divest its 81 percent stake in CBS Outdoor Americas Inc. H&R Block Inc. rose 4.6 percent after reporting sales that topped analysts’ forecasts.
Treasuries climbed for the first time in four days, driving down the 10-year yield by 1 basis point to 2.63 percent. U.S. government securities had been falling since the Labor Department reported June 6 that U.S. employers added more than 200,000 jobs for a fourth month in May.
Bill Gross, manager of the world’s largest bond fund, said German bund yields at almost the least versus their U.S. peers this millennium were “a magnet” to lower Treasury yields.
The MSCI Emerging Markets Index slipped 0.2 percent. Russia’s Micex gained for a fourth day, adding 0.7 percent. Russia gave Ukraine an extra six days to begin payments in a gas-supply deal with the European Union as the parties prepare to resume talks today in Brussels.
Turkish shares fell 3.3 percent, the most this year, after a news channel said militants from an al-Qaeda splinter group entered the Turkish consulate in Iraq’s second-largest city and took an unspecified number of hostages. Tribal gunmen were close to capturing Baiji, north of Baghdad and home to Iraq’s biggest refinery, Al-Jazeera television said.
Iraq’s 2028 Eurobond fell the most in almost a year, sending the yield 39 basis points higher to 6.84 percent.
Japan’s currency gained a third day amid speculation the Bank of Japan will refrain from expanding stimulus at a meeting that starts today, diverging from the European Central Bank that unveiled record easing last week.
The yen climbed 0.1 percent to 101.99 per dollar after advancing 0.3 percent yesterday. Europe’s shared currency slipped 0.1 percent to 138.05 yen. It was little changed at $1.3533 after dropping to $1.3503 on June 5, the lowest since Feb. 6.
Wheat futures tumbled and corn fell to a four-month low as the U.S. government said global supplies will be bigger than analysts estimated. Rising grain supplies are helping to keep global food costs in check, with the United Nations saying that world prices fell in May for the second straight month.
Wheat has slumped 20 percent from a 14-month closing high on May 6, the typical definition of a bear market. The U.S. is the world’s top exporter. Corn futures dropped 1 percent to $4.41 a bushel.
West Texas Intermediate crude’s discount to Brent widened as supplies at Cushing, Oklahoma, dropped by the least in nine weeks. The Brent-WTI spread rose from the lowest level since April after the Energy Department said supplies at Cushing, the delivery point for WTI futures, dropped 198,000 barrels to 21.2 million last week. Falling inventories at the hub have boosted U.S. prices and narrowed the gap.
WTI was little changed yesterday while Brent gained 0.4 percent on concern Middle East tension will disrupt supplies.
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