Asian Futures Signal Extension of Fed Rout as Gold Sinks
Asian stock futures slid, indicating shares in the region may extend the global market retreat, on prospects the Federal Reserve will start paring back stimulus later this year and concern over China’s cash crunch. Gold futures sank and crude slipped for a third day.
Futures (NHU3) on Japan’s Nikkei 225 Stock Average due in September closed at 12,805 in Chicago, down from 13,030 yesterday in Japan. They were bid in the pre-market at 12,830 by 8:05 a.m. in Osaka, while Hang Seng Index futures in Hong Kong dropped 1 percent, and contracts on Australia’s (XPU3) S&P/ASX 200 Index slumped 1.7 percent. Futures on the Standard & Poor’s 500 Index were little changed by 8:12 a.m. in Tokyo, after the gauge sank the most since November 2011 in New York. Gold futures due in August fell 0.2 percent and oil sank 0.4 percent. The yen and the Australian and New Zealand dollars gained.
The MSCI All-Country World Index (MXWO) of global equities plunged the most in 19 months yesterday after Fed Chairman Ben S. Bernanke said bond buying that has fueled gains in markets around the world may be trimmed this year and ended in 2014 should risks to the U.S. economy continue to decrease. The $85 billion in monthly purchases will be cut by $20 billion at the Fed’s September meeting, a Bloomberg survey of economists showed. Chinese policy makers added 50 billion yuan ($8.2 billion) to the financial system yesterday after money-market rates ballooned, according to Bank of Communications Co.
“Exiting quantitative easing gracefully will not be easy as the stimulus has seen global equities dramatically outperform fundamentals,” Sharon Zoellner, senior economist at ANZ Bank New Zealand Ltd. in Wellington, wrote in an e-mail today. “The hangover is kicking in at the mere mention that the punchbowl will need to be watered down.”
Futures on the Hang Seng China Enterprises Index of mainland Chinese stocks traded in Hong Kong slid 0.7 percent, while the Bloomberg China-US Equity Index (CH55BN) of the most-traded Chinese shares in New York sank 3.6 percent to the lowest level since October 2011. China’s seven-day repurchase rate, a gauge of interbank funding availability, rose to the highest level since at least 2006 yesterday.
Gold futures sank to $1,283.50 an ounce, after tumbling 6.4 percent yesterday. Holdings (GDTRGOLD) in the SPDR Gold Trust, the world’s largest exchange-traded product backed by bullion, fell below 1,000 metric tons for the first time in four years. Copper futures slid a fourth day, losing 0.9 percent, while silver, palladium and platinum also declined.
West Texas Intermediate crude fell for a third day, slipping to $94.98 a barrel after settling down 2.9 percent in New York at $95.40, its biggest decline in seven months.
About 9.4 billion shares changed hands yesterday in the U.S., the highest volume of the year, according to data compiled by Bloomberg.
The S&P 500 (SPX) extended June 19’s 1.4 percent slump and fell to the lowest level since May 1 as all 10 of its main industry groups retreated at least 2.2 percent. The benchmark index extended its decline from its last record reached May 21 to 4.9 percent, trimming its 2013 advance to 11 percent and its rally from its bear-market low in 2009 to 135 percent.
An S&P index of homebuilders sank 7.1 percent, the most in a year, even after sales of previously owned U.S. homes climbed more than forecast in May to the highest level since November 2009. Purchases of existing houses in the U.S. increased 4.2 percent to an annualized rate of 5.18 million from 4.97 million in April, National Association of Realtors figures showed. The median forecast in a Bloomberg survey of economists called for a rate of 5 million.
Another report showed the index of U.S. leading indicators rose less than projected in May, a sign the world’s largest economy may take time to accelerate. The Conference Board’s gauge of the outlook for the next three to six months increased 0.1 percent after a revised 0.8 percent gain in April that was higher than initially reported. The median forecast of economists was for a rise of 0.2 percent.
More Americans than forecast filed applications for unemployment benefits last week, with claims climbing by 18,000 to 354,000 in the week ended June 15 from a revised 336,000 the prior period, the Labor Department reported. The median forecast of 46 economists surveyed by Bloomberg called for an increase to 340,000.
The yen added 0.4 percent to 96.94 per dollar, after falling against the greenback every other day this week. Japan’s currency gained 0.2 percent to 128.32 per euro.
The Australian dollar climbed 0.2 percent to 92.13 U.S. cents. It touched 91.64 yesterday, the weakest level since September 2010, and tumbled 1.1 percent. New Zealand’s dollar also rose 0.2 percent to 77.72 cents, after declining 1.8 percent yesterday.
Bernanke’s remarks prompted economists to predict a faster reduction in bond purchases. The first cut will come at the Sept. 17-18 policy meeting, according to 44 percent of economists in a Bloomberg survey. In a June 4-5 survey, 27 percent of economists forecast tapering would start in September.
The stock sell off pushed the MSCI all-country gauge down more than 7 percent from a five-year high reached May 21, the day before Bernanke raised the possibility of reducing stimulus should U.S. economic indicators improve. About $2.4 trillion was erased from global equity values over that stretch, with indexes in Hong Kong and Japan sliding more than 20 percent into bear markets.
Yields on 10-year Treasuries touched 2.47 percent, the highest level since August 2011, before closing six basis points, or 0.06 percentage point, higher at 2.42 percent. Thirty-year U.S. bond yields jumped 11 basis points to 3.52 percent, the highest level since August 2011, and two-year rates increased two basis points to 0.33 percent.
New Zealand’s 10-year rate rose a fifth day today, adding 3 basis points to 4.11 percent after surging 30 basis points yesterday.
Volatility in Treasuries as measured by the Bank of America Merrill Lynch MOVE Index (MOVE) was at 86.89 June 19, the most since June 2012.
The Fed may be unable to calm the volatility that it triggered in global financial markets after signaling an eventual cut in its monetary stimulus, according to Bill Gross, manager of the world’s biggest bond fund.
“I doubt they can put Humpty Dumpty back together again,” Pacific Investment Management Co.’s founder Gross said in a radio interview on “Bloomberg Surveillance” with Tom Keene and Mike McKee. Vice Chairman “Janet Yellen’s task was to damp volatility, to lower that term premium, to calm markets, and they did that. But now there is significant unrest.”
Investor confidence in U.S. corporate credit plunged.
The Markit CDX North American Investment Grade Index, a credit-default swaps benchmark that investors use to hedge against losses or to speculate on creditworthiness, increased 5.7 basis points to a mid-price of 91.4 basis points in New York, after climbing 3.9 basis points June 19, according to prices compiled by Bloomberg. That’s the biggest two-day jump on a closing basis since the measure rose 8.8 in the period ended May 14, 2012, excluding rolls into new series of the benchmark.
The JPMorgan Global FX Volatility Index increased to as high as 11.51 percent, the most in a year. The average over the past 12 months has been 8.66 percent.
The MSCI Emerging Markets Index (MXEF) slid 4 percent yesterday, the most since Sept. 22, 2011 and the third day of declines.
“We expect another round of correction in the period ahead, across the board, be it in emerging market currencies or emerging market fixed income,” a team led by Benoit Anne, head of emerging-markets strategy at Societe Generale SA in London, wrote in a report yesterday. “We are positioned quite defensively.”
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