European, Asian Stocks Decline on Spain Downgrade, China Outlook
European and Asian stocks dropped after Spain’s credit rating was cut to one level above junk and investment banks lowered forecasts for Chinese economic growth. US stock futures and the euro advanced.
The Stoxx Europe 600 Index lost 0.3 percent at 8:04 a.m. in London and the MSCI Asia Pacific Index slid 0.4 percent. The dollar was little changed against the euro before U.S. inflation data that may support the case for further stimulus, while Standard & Poor’s 500 Index futures climbed 0.4 percent.
Spain’s credit rating was cut three steps to Baa3 by Moody’s Investors Service yesterday. Credit Suisse Group AG lowered China’s growth forecast for 2012 to 7.7 percent from 8 percent and Deutsche Bank AG trimmed its estimate to 7.9 percent from 8.2 percent on concern the debt crisis in Europe, China’s largest export market, will worsen.
“Europe is sliding further into a recession and the global and US economies are still slowing down,” said Shane Oliver, the Sydney-based head of investment strategy at AMP Capital Investors Ltd., which has almost $100 billion under management. “It’s still time for caution on the short-term view.”
Banco Santander SA, Spain’s largest lender, fell 0.9 percent. Industrial & Commercial Bank of China Ltd. and China Construction Bank Corp. paced declines for Chinese lenders on concern slowing growth will sap demand for loans. A “meaningful” investment rebound is unlikely in the foreseeable future, Tao Dong, Credit Suisse’s chief China economist, wrote in a note to clients.
Italy holds a bond auction today amid rising borrowing costs, its first since Spain’s 100 billion-euro ($126 billion) bank rescue. Spain is on review for a further downgrade, said Moody’s, which also lowered Cyprus’s bond rating. A US official said the Group of 20 nations probably won’t announce significant progress on Europe’s crisis ahead of a meeting in Los Cabos, Mexico, on June 18 to June 19.
The euro held two days of gains against the dollar as Alexis Tsipras, whose Syriza party is vying for first place in Greek polls before a June 17 election, said he expects the European Union will do all it can to keep the nation in the euro even if he wins and carries out his promise to repeal austerity measures. The region’s currency was at $1.2561.
“No one is going to take big positions in the market with the Greek elections looming over the weekend,” Kelvin Tay, the Singapore-based chief investment officer for the southern Asia Pacific region at UBS AG’s wealth management unit, said in a Bloomberg television interview today.
Australia’s bonds jumped the most in two weeks after the Australian newspaper reported Germany’s central bank may buy assets in the South Pacific nation. Gains in the 10-year security sent its yield down by 13 basis points, or 0.13 percentage point, to 2.93 percent, set for the steepest daily drop since May 31.
New Zealand’s dollar rose against all 16 major peers after the central bank signaled no change in rates until mid-2013.
Gold advanced for a fifth day in the longest rally since April as forecasts for lower inflation increased speculation the U.S. Federal Reserve will take more steps to boost the economy. The Fed is scheduled to hold a two-day policy meeting starting June 19.