Global stocks plunged, extending a rout that wiped $5.3 trillion off market value this month, on concern Europe will struggle to contain its debt crisis and the U.S. economic recovery is faltering. Commodities slumped and bond risk surged.
The MSCI Asia Pacific Index declined 1.9 percent to 111.33 as of 11:04 a.m. in Tokyo, the lowest level since Aug. 21. Crude oil for July delivery dropped as much as 2.1 percent, to $69.31 a barrel. The cost of insuring Asia-Pacific bonds against non- payment soared to the highest in at least six months. The euro rallied from a four-year low, climbing 0.3 percent to $1.2517, on speculation governments will act to halt the currency’s slide.
Global equities are set for the biggest monthly decline in market value since October 2008 as confidence was rocked by Germany’s crackdown on speculation and plans to tighten U.S. finance industry regulation. Jobless claims in the world’s largest economy unexpectedly increased to 471,000 last week and the Conference Board’s index of leading economic indicators posted a surprise drop of 0.1 percent.
“A combination of events has made investors reassess the outlook for the global economy,” said Stephen Halmarick, Sydney-based head of investment-markets research at Colonial First State Global Asset Management, which holds about $138 billion. “There’s clearly been a major reduction in risk appetite globally and it’s difficult to see the situation stabilizing in the near term.”
Japan’s Nikkei 225 Stock Average sank 2.5 percent. Honda Motor Co., which gets about 81 percent of its sales from overseas, declined 4.1 percent to 2,776 yen. Canon Inc., a camera maker that counts Europe as its biggest market by revenue, dropped 2.9 percent to 3,715 yen. Stock markets in South Korea and Hong Kong are closed today for holidays.
Benchmark indexes in Taiwan, Singapore, Vietnam and Indonesia fell more than 10 percent from their recent peaks today. Taiwan’s Taiex fell 2.5 percent, bringing its decline since April 15 to 11 percent, even after the government yesterday reported an 13.27 percent economic expansion in the first quarter, the fastest growth in more than 30 years.
Singapore’s Straits Times index dropped 11 percent since its April 14 high, losing 2 percent today. The government said yesterday the city’s economy grew an annualized 38.6 percent in the first quarter from the previous three months. Vietnam’s VN Index dropped 3.3 percent. The benchmark measure is 11 percent lower from its May 6 peak this year.
“Investors are losing confidence,” said Robyn Hsu, who helps manage $3 billion at Capital Investment Trust Corp. in Taipei. “Taiwan’s growth will slow through the year despite a very stunning first-quarter figure yesterday. Falling commodity and gold prices suggest investors are retreating even from relatively safe markets.”
Oil extended its decline after crude inventories rose for the 15th time in 16 weeks in the seven days ended May 14. Copper for three-month delivery fell 0.9 percent to $6,548.75 per metric ton and headed for its sixth weekly decline. The metal has slumped 16 percent in the past month.
BHP Billiton Ltd., the world’s largest mining company, slumped 2.4 percent to A$35.85 in Sydney. Rio Tinto Group, the world’s No.3 mining company, tumbled 4 percent to A$59.78.
U.S. stocks plunged this week as President Barack Obama said a financial regulation overhaul is moving through Congress despite efforts to block its progress by industry lobbyists.
German Chancellor Angela Merkel’s unilateral effort to control what she called “destructive” markets rattled investors. The German ban on some bearish bets against financial companies and government bonds wasn’t replicated in other European states. Treasury Secretary Timothy F. Geithner will visit Germany and the U.K. next week to discuss the crisis.
The euro rallied against the dollar amid speculation the Swiss National Bank sought to support the franc drove traders to theorize that the European Central Bank may do the same for the shared currency. The Australian dollar rebounded from a 10-month low versus the greenback on speculation the nation’s central bank is also prepared to intervene.
Futures on the Standard & Poor’s 500 Index gained 0.1 percent after the index plunged 3.9 percent yesterday, its biggest drop since April 2009. Ten-year U.S. Treasury yields, which sank to the lowest level of the year yesterday, rose 2 basis points to 3.24 percent.
European Union President Herman Van Rompuy will host a meeting of finance ministers in Brussels today to discuss reforms to economic governance. German Finance Minister Wolfgang Schaeuble will present a nine-point plan to his euro-area counterparts aimed at avoiding a repeat of the fiscal crisis touched off by Greece’s budget deficit.
Australia’s dollar reversed earlier declines of as much as 1.2 percent to trade up 1 percent at 82.53 U.S. cents.
“The spike of the Aussie, which took place amidst all the gloom, suggests that there was some unnatural act,” said Takashi Kudo, Tokyo-based general manager of market information at NTT SmartTrade Inc., a unit of Nippon Telegraph & Telephone Corp. The Reserve Bank of Australia doesn’t comment on speculation, according to a spokesperson.
Malaysia’s ringgit slid 0.9 percent to 3.3170 per dollar, leading declines in Asian currencies on speculation China will offer no concessions on yuan appreciation at the Strategic & Economic Dialogue with the U.S. in Beijing May 24-25.
Yuan twelve-month non-deliverable forwards dropped 0.1 percent to 6.7579 per dollar, reflecting bets the currency will strengthen 1 percent in the year ahead, the least in more than eight months. The central bank may delay raising borrowing costs, revaluing the exchange rate and implementing property taxes amid deepening woes in Europe, BNP Paribas said in a research note.
The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan jumped 18 basis points to 157.5 basis points. Credit-default swap indexes are benchmarks for protecting debt against default and traders use them to speculate on credit quality.
“This correction is only the start of the end-game,” said Mark Bayley, a Sydney-based credit strategist with advisory firm Aquasia Ltd. “Markets are only slowly grasping that we cannot continue to finance deficits with more debt. At some stage governments, and consumers, need to stop spending, re-jig finances and plot a more austere and cautious future path.”