Asian stocks and currencies fell, bond risk jumped to a two-year high and copper sank for a fifth day as the Federal Reserve signaled “significant downside risks” in the U.S. economy and Moody’s Investors Service cut credit ratings on three banks.
The MSCI Asia Pacific Index dropped 2.8 percent as of 11:03 a.m. in Tokyo. Standard & Poor’s 500 Index futures climbed 0.2 percent after a three-day slump. Treasury 10-year yields fell to a record. The dollar rose 0.4 percent against the yen, helping an index of the U.S. currency to a seven-month high. South Korea’s won sank 2.3 percent and New Zealand’s dollar weakened 0.6 percent. Copper slumped 2.2 percent and oil lost 1.2 percent.
Financial shares were the biggest drag on the MSCI Asian index on concern the Fed’s plan to buy $400 billion of bonds with maturities of six to 30 years through June, replacing shorter dated debt, will curb profit margins for global banks. The plan, dubbed “Operation Twist” after a similar program in 1961, will probably fail to lower the 9.1 percent unemployment rate, according to 61 percent of economists surveyed by Bloomberg before the announcement.
“The version of Operation Twist the Fed announced was pretty much as expected, but having said there are now ‘significant downside risks’ to the U.S. economy, it isn’t enough,” said Shane Oliver, Sydney-based head of investment strategy at AMP Capital Investors Ltd., which has almost $100 billion under management. “Investors have reacted by selling down shares, commodities and other growth assets.”
Stocks Slump
About 15 shares declined for every one that climbed on MSCI’s Asia Pacific Index, which was poised for its lowest close since July 7, 2010. Japan’s Nikkei 225 Stock Average slid 1.6 percent, South Korea’s Kospi Index decreased 2.6 percent and Hong Kong’s Hang Sent Index lost 3.4 percent.
Mitsubishi UFJ Financial Group Inc., Japan’s largest lender by market value, fell 2.1 percent as BNP Paribas said it was “negative” on the nation’s banks. HSBC Holdings Plc, Europe’s largest bank, dropped 2.9 percent.
“The market had priced in the Fed’s plan,” said Masahide Tanaka, a senior strategist in Tokyo at Mizuho Trust & Banking Co., a unit of Japan’s third-largest bank by market value. “It won’t boost the economy much, while it may have a negative impact on earnings of financial institutions. Banks get short- term funding, use it in the long-term and take a profit.”
The S&P 500 slumped 2.9 percent yesterday after Moody’s cut its long-term credit ratings on Bank of America Corp. and Wells Fargo & Co., saying U.S. support has become less likely if lenders get into financial trouble. Citigroup Inc.’s short-term rating also was cut by Moody’s.
Yields Drop
Yields on 10-year Treasuries dropped as much as two basis points to an all-time low of 1.8345 percent today, after declining eight basis points yesterday. An index of U.S. leading indicators probably rose the least in August in four months, pointing to a slower recovery heading into next year, economists said before the data today. Japan’s benchmark 10-year yield slid 1.5 basis points to 0.97 after touching 0.965 percent, the lowest since Nov. 9.
The cost of protecting Asia-Pacific corporate and sovereign bonds from default surged. The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan rose 17 basis points to 215 basis points, the highest since May 2009, according to Credit Agricole SA prices show and data from CMA. Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a government or company fail to adhere to its debt agreements.
Dollar, Euro
The dollar climbed to 76.77 yen from 76.46 yesterday in New York and traded at $1.3574 per euro. InterContinentalExchange Inc.’s Dollar Index, which tracks the U.S. currency against those of six trading partners, rose 0.2 percent, set for its highest close since Feb. 17.
The euro rallied 0.4 percent to 104.21 yen amid speculation Greece will accelerate budget cuts to keep emergency loans flowing after the government said yesterday it will target civil servants’ wages and pensioners. The policies were demanded by international lenders to ensure Greece meets the deficit- reduction targets that are a condition of its 110 billion-euro bailout package so it can receive a payment due next month.
The won dropped to 1,176.30 after reaching the lowest in more than a year. Overseas investors pulled $918 million from Korean stocks this month through yesterday. Taiwan’s dollar sank as much as 0.9 percent to NT$30.225 per dollar, an eight-month low. The island’s jobless rate likely rose to 4.4 percent in August from 4.37 percent in July, according to a Bloomberg survey of economists before data due today. The Indonesian rupiah slumped 1.6 percent to 9,225 per dollar.
Demand for Dollars
“It seems the Fed announcement is boosting demand for dollars instead of doing the opposite, after its comments on the economic downside risk,” said Lee Jin Ill, a Seoul-based senior currency dealer with Hana Bank. “The plan to buy long-term bonds was already expected and reflected in market prices.”
The so-called kiwi sank to 79.94 U.S. cents. New Zealand’s gross domestic product rose 0.1 percent in the three months through June from the previous quarter, less than all but one of 15 forecasts in a Bloomberg News survey.
Copper for three-month delivery dropped as much as 3.1 percent to $8,039.75 a metric ton before trading at $8,113 on the London Metal Exchange. A close at that level will bring losses from the Feb. 14 all-time high to 20 percent, a drop seen by some analysts as indicating a bear market.
Oil fell for a second day in New York as investors speculated that fuel demand will falter. Futures slipped as much as 2.1 percent before trading 1.3 percent lower at $84.78 a barrel on the New York Mercantile Exchange. Crude dropped 1.2 percent yesterday.
To contact the reporter on this story: Shiyin Chen in Singapore at schen37@bloomberg.net; Shani Raja in Sydney at sraja4@bloomberg.net
To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
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