Asia Stocks, Oil Drop as Euro Heads for Loss on Payrolls
Asian stocks and oil retreated for a second day while the euro headed for its worst week this year after interest-rate cuts in Europe and China failed to assure investors the moves will be enough to boost economic growth. Bond risk in Asia rose before a monthly U.S. jobs report.
The MSCI Asia Pacific Index was 0.5 percent lower at 12:14 p.m. in Tokyo while Standard & Poor’s 500 Index futures were little changed. The euro was at $1.238 per dollar after touching a one-month low of $1.2364 yesterday. Crude declined 0.8 percent in New York as corn slid 1.7 percent.
The European Central Bank yesterday reduced its benchmark rate to a record low of 0.75 percent and the People’s Bank of China cut borrowing costs for a second time in a month. U.S. Labor Department data today may show hiring slowed in the second quarter to less than half the pace of the prior three months and the unemployment rate held at 8.2 percent.
“There is weakness around the world,” said Stephen Roach, a professor at Yale University and former non-executive chairman for Morgan Stanley in Asia. “When you are at extremely low levels of policy interest rates, you can’t expect that that’s going to jump-start the economy.”
ECB President Mario Draghi said the cuts may have only a “muted” effect and downside risks to the economic outlook have materialized. The Bank of England raised the size of its asset- purchase program as the debt crisis in Europe hurts global growth. Last month, the Federal Reserve extended a program of replacing short-term bonds with longer-term debt. Data today is forecast to show industrial production in Germany and Spain fell.
Euro Weakens
“The European economy is in recession and this cut or even another cut of an equal magnitude is not going to change that outcome,” Roach said in a Bloomberg Television interview. “The U.S. economy is still very soft as well and I think the Fed is on the fence as to whether or not it wants to do another easing.”
The cost of insuring corporate and sovereign bonds from non-payment in the Asia-Pacific region increased, according to traders of credit-default swaps. The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan increased 2 basis points to 167, Standard Chartered Plc prices show. The benchmark, which has ranged between 210 and 132.5 this year, declined for seven- consecutive days through July 4, according to data provider CMA.
The euro is poised for a 2.3 percent drop this week, the sharpest decline since the five-days ended Dec. 16. About five stocks fell for every three that rose on the MSCI Asia Pacific Index, which is still 1 percent higher this week on bets central banks around the world will do more to spur growth.
Chinese Banks
Hong Kong’s Hang Seng Index lost 0.4 percent, led by Chinese lenders, on concern lower interest rates could cut into profits next year. Industrial & Commercial Bank of China Ltd., the nation’s largest, dropped 1.4 percent and China Construction Bank Corp., the second biggest, retreated 2.3 percent.
The effect of China’s rate reduction on the real economy and the market is likely to be limited and the central bank is expected to cut banks’ reserve-requirement ratios again soon, according to Hao Hong, the head of Chinese research at Bank of Communications Co. in Hong Kong.
Foxconn International Holdings Ltd. rose 0.4 percent on a report it’s developing smartphones with Amazon.com Inc. to rival Apple Inc.’s iPhone. Shares of Samsung Electronics Co., the world’s largest maker of televisions and mobile phones, fell 1.7 percent even as the company posted a record quarterly profit.
Oil, Corn
New York crude slid to $86.19 a barrel amid speculation Norway’s government will intervene to stop a strike that threatens to shut the country’s offshore oil production. Prices are up 1.4 percent this week after a European Union ban on Iranian oil exports came into effect July 1.
Corn dropped for the first time in a week after prices climbed as much as 5.7 percent to $7.13 a bushel yesterday, the highest for the most-active contract since Sept. 15. The crop has surged 25 percent since the end of May as hot, dry weather stresses harvests in the U.S., the biggest exporter.
Treasuries headed for a weekly advance on speculation slowing U.S. economic growth and inflation are increasing pressure on the central bank to start a third round of bond purchases. The Fed bought $2.3 trillion of debt in two rounds of so-called quantitative easing from 2008 to 2011 to support the economy.