Bloomberg News

Asia Stocks, Euro Fall on S&P Rating Cuts; Equity Futures Slide

January 19, 2012

Jan. 16 (Bloomberg) -- Asian stocks fell the most in almost a month, the euro touched an 11-year low versus the yen and European equity futures retreated after Standard & Poor’s stripped France of its top credit rating and cut eight other euro-zone nations.

The MSCI Asia Pacific Index tumbled 1.3 percent as of 4:09 p.m. in Tokyo, the most since Dec. 19. Euro Stoxx 50 Index futures retreated 0.3 percent and Standard & Poor’s 500 Index futures sank 0.5 percent. The euro dropped 0.3 percent to 97.24 yen and the Chinese yuan weakened the most in a month. Australian 10-year bond yields fell 18 basis points to 3.67 percent, the biggest slump since August. Copper rebounded after falling as much as 1.1 percent.

France will auction as much as 8.7 billion euros ($11 billion) of bills today, followed by the European Financial Stability Facility’s 1.5 billion-euro sale tomorrow. Europe’s debt crisis will inevitably affect Asia, Hong Kong Chief Executive Donald Tsang said. Japan’s Prime Minister Yoshihiko Noda said containing the country’s public debt load, the world’s largest, is critical.

“It’s going to be a couple of days of real uncertainty in markets,” Jim McCaughan, the chief executive officer of Des Moines, Iowa-based Principal Global Investors LLC, said in a Bloomberg Television interview. The company oversees about $230 billion. “The Standard & Poor’s news was really rationalizing what the market knew already, which is that the credit quality of those countries is not what it was and the probability of default is much higher.”

Ratings Cut

S&P warned on Jan. 13 that Europe’s efforts to fight its crisis are falling short as it lowered the top ratings of France and Austria one level to AA+. The New York-based company downgraded Italy, Portugal, Spain and Cyprus by two steps and cut Malta, Slovakia and Slovenia by one level. It affirmed the ratings of countries including Germany, Belgium, and Ireland.

The euro fell as much as 0.5 percent to 97.04 yen, the lowest since December 2000. The shared currency slid 0.3 percent to $1.2647. Greek officials will reconvene with creditors on Jan. 18 after discussions stalled last week over the size of investor losses in a proposed debt swap, raising the threat of default.

The MSCI Asia Pacific Index has climbed 7.5 percent since a two-year low in October and capped four weeks of gains on Jan. 13, the longest stretch in a year. The equity benchmark trades at 12.2 times estimates earnings, 27 percent less than the six- year average, according to data compiled by Bloomberg.

Nikkei, Kospi

About five stocks fell for each that gained in the MSCI Asia index. Financial and technology companies contributed the most to the decline in the gauge. Japan’s Nikkei 225 Stock Average slid 1.4 percent and South Korea’s Kospi Index retreated 0.9 percent.

S&P 500 futures declined to 1,282.10. Wells Fargo & Co. and Citigroup Inc. are among companies to report quarterly results this week. U.S. stock markets are closed for a holiday today.

“It’s unrealistic to expect Europe to make progress in dealing with debt issues in a straight line without having hiccups,” said Prasad Patkar, who helps manage about $1 billion at Platypus Asset Management Ltd. in Sydney. S&P’s ratings downgrades are “not going to help investor sentiment.”

The BSE India Sensitive Index, or Sensex, slipped 0.2 percent. The country’s inflation slowed to the lowest level in two years, giving the central bank scope to keep interest rates on hold for a second straight meeting next week. The benchmark wholesale-price index rose 7.47 percent in December from a year earlier, the commerce ministry said in a statement in New Delhi today, compared with a 9.11 percent gain in November.

China Markets

The Shanghai Composite Index declined for a fourth day, losing 1.7 percent and the Hang Seng Index tumbled 1.1 percent. Data tomorrow will probably show that China’s economy grew 8.7 percent in the last three months of 2011, the slowest pace in 10 quarters, as export demand slumps and officials prolong a campaign against property bubbles, according to the median economist estimate from a Bloomberg survey.

The yuan retreated 0.14 percent, the most since Dec. 20, to 6.3154 per dollar, according to the China Foreign Exchange Trade System. The People’s Bank of China set the currency’s fixing 0.17 percent weaker at 6.3306 per dollar, the lowest level since Dec. 20. The currency is allowed to trade 0.5 percent on either side of the daily fixing.

The Australian dollar slid 0.4 percent to $1.0286. The currency maintained its decline even after data showed home loans rose for an eighth straight month in November. New Zealand’s dollar weakened 0.2 percent to 79.29 U.S. cents.

Japan’s 10-year government bond yield fell one basis point to 0.94 percent, matching the lowest rate since November 2010. The yen advanced against all 16 major counterparts.

Limited Fallout

History suggests fallout from S&P’s ratings downgrades of European countries may be limited. JPMorgan Chase & Co. research shows that 10-year yields for the nine sovereigns that lost their AAA status between 1998 and last year’s U.S. downgrade rose an average of two basis points the following week.

French 10-year yields climbed four basis points on Jan. 13 to 3.08 percent. The extra yield investors demand to hold French 10-year debt instead of German bunds has widened to 131 basis points, compared with an average of 69 basis points over the past year.

Copper for delivery in three months advanced 0.2 percent to $8,012 a metric ton on the London Metal Exchange. Zinc fell 0.4 percent to $1,952.50 a ton and nickel lost 0.5 percent to $19,499 a ton.

Oil climbed 0.6 percent to $99.26 a barrel as signs that Europe’s debt crisis is worsening were offset by Iran’s call for support to defy a ban on its crude exports. Mohammad-Ali Khatibi, Iran’s OPEC governor, said support by Arab producers of a European import embargo would be a “dangerous political game,” according to the Shargh newspaper.

--With assistance from Susan Li in Hong Kong, Candice Zachariahs in Sydney and Masaki Kondo in Singapore. Editors: Alexander Kwiatkowski, Sandy Hendry

To contact the reporters on this story: Lynn Thomasson in Hong Kong at lthomasson@bloomberg.net; Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net

To contact the editor responsible for this story: Alexander Kwiatkowski at akwiatkowsk2@bloomberg.net


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