BL: Euro Erases Gains as Optimism Cools; Stocks, Commodities Fall on China CPI
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May 11 (Bloomberg) -- The euro lost all of yesterday’s gains on concern the almost $1 trillion lending plan to bail out indebted nations in Europe will trim economic growth in the region. Stocks, copper and U.S. index futures fell after China’s inflation rate hit an 18-month high.
The euro weakened to $1.2737 at 8:27 a.m. in London and was 0.2 percent below last week’s close, after strengthening as much as 2.7 percent yesterday. The MSCI Asia Pacific Index dropped 1 percent to 118.99, with five stocks sliding for every two that gained. The Stoxx Euro 600 decreased 1.1 percent to 251.35. Standard & Poor’s 500 Index futures lost 0.8 percent, following the biggest jump in U.S. stocks since March 2009. Copper led commodities lower, falling 1.6 percent.
“Markets realized quickly that this crisis won’t be cured by adding liquidity, no matter how big it is,” said Toshihiko Sakai, head of trading for currencies and financial products at Mitsubishi UFJ Trust & Banking Corp. in Tokyo. “The structural problems of the euro zone will persist. I’m not surprised at all the euro is losing strength again.”
Accelerating inflation may prompt policy makers in China, the world’s third-largest economy, to tighten lending controls as the European Union’s bailout plan forces nations including Greece, Spain and Portugal to increase taxes and rein in public spending. Greece may have its credit rating lowered to junk within the next month, Moody’s Investors Service said yesterday, citing the country’s “dismal” economic prospects.
‘Multiyear Contractions’
The euro fell 0.5 percent, after yesterday gaining 0.3 percent. It reached $1.2529 on May 6, the weakest level since January 2009. Against the yen, the currency today dropped 1.3 percent to 117.73.
Every “fix” is accompanied by “an adjustment in the real economy,” Stephen Roach, chairman of Morgan Stanley Asia Ltd., said late yesterday in an interview on Bloomberg Radio with Tom Keene. “We saw that in Asia in the late ‘90’s, we saw that in the U.S. in ‘08, ‘09, and we’re going to see that in Europe, certainly in the peripheral countries, with significant multiyear contractions in the years ahead.’’
Hong Kong’s Hang Seng Index dropped 1.7 percent, the worst performance among Asia’s major benchmark stock indexes, and the Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, fell 51.31, or 1.9 percent, to close at 2,647.44, the lowest in almost a year. The measure slid 21 percent from the close on Nov. 23, entering a bear market.
China Risk
China today said consumer prices rose 2.8 percent from a year earlier in April and property prices jumped 12.8 percent, the most since data began in 2005. New lending of 774 billion yuan ($113 billion), reported by the central bank, was more than any of 24 economists forecast in a Bloomberg survey.
‘‘Price pressures have been building throughout the economy, strengthening the case for higher interest rates and a stronger yuan,” said Brian Jackson, a Hong Kong-based strategist at Royal Bank of Canada. “China is at risk of overheating, with spot fires breaking out in various parts of the economy.”
Copper futures on the London Metal Exchange fell to $7,003.50 a metric ton and crude oil decreased 0.6 percent to $76.37 a barrel in New York, paring an earlier 0.8 percent gain. Shares of BHP Billiton Ltd., the world’s largest mining company, declined 2.2 percent to A$38.13 in Sydney.
Mizuho Financial Group Inc. sank 4.7 percent to 163 yen, leading Japanese banks lower, on reports the company plans to sell about 1 trillion yen ($11 billion) of stock to bolster capital. Mitsubishi UFJ Financial Group Inc., the nation’s largest publicly traded bank, fell 1.7 percent to 460 yen.
Philippine Election
The Philippine Stock Exchange Index surged 3.9 percent, the most in eight months, after early results suggested a landslide presidential election victory for Benigno Aquino, whose late mother helped oust former dictator Ferdinand Marcos. Aquino, who was leading in opinion polls prior to the vote, said April 26 only fraud could stop him winning and such an outcome would trigger unrest comparable with the protests that swept his mother to power 24 years ago.
“It looks like it will be a landslide victory,” said Marvin Fausto, who oversees $10.8 billion as chief investment officer at Banco de Oro in Manila. “It seems we are going to a situation where there is a clear mandate.”
To contact the reporter for this story: James Regan in Hong Kong Jregan19@bloomberg.net;
Last Updated: May 11, 2010 03:27 EDT
