Business

Published: Tuesday July 10, 2012 MYT 7:48:00 AM
Updated: Tuesday July 10, 2012 MYT 12:39:35 PM

Global stocks fall on worries about economic growth, Europe(update)


NEW YORK: Stocks on major world markets fell on Monday as investors fretted about disappointing economic data in Asia, while EU finance ministers met again to grapple with the euro zone's debt crisis.

Wall Street stocks ended the day modestly lower as investors were also bracing for the start of the corporate earnings reporting season for the second quarter, with Alcoa reporting results late Monday.

Weaker-than-expected Chinese inflation data and a record fall in Japan's machinery goods orders added on to last Friday's dismal U.S. jobs report and raised concerns the global economy is hitting a soft patch.

Doubts that a meeting of euro zone finance chiefs will result in much progress further dented sentiment, while yields on benchmark Spanish and Italian bonds were moving up to levels considered unsustainable.

Diplomats said on Monday that Europe will grant Spain an extra year to reach its deficit targets after it outlines further budget savings to a finance ministers meeting in Brussels.

"While reasons for optimism seem to be few and far between these days, reasons for extreme pessimism are too," said Randy Frederick, managing director of active trading & derivatives at Charles Schwab.

"Although structural issues in Europe are far from resolved, it appears that the threat of a near-term market meltdown has been somewhat alleviated for now."

Speculation policymakers will step in with further efforts to boost the economy helped to limit losses.

The euro recovered against the U.S. dollar in a technical rebound from a two-year low earlier in the session.

The euro was last up 0.2 percent against the dollar at $1.2314 after climbing as high as $1.2324 and well off a low of $1.2255 hit in early trade.

"There's a significant amount of traders short euro and therefore it is not particularly unusual to see unexplained bursts of short-covering," said Kathy Lien, managing director of FX strategy at BK Asset Management.

SHARES STUMBLE

The FTSEurofirst 300 index ended down 0.4 percent at 1,030.09.

The MSCI world index, hit by a weaker session in Asia, was down 0.6 percent, a fourth straight day of declines.

The Dow Jones industrial average fell 36.18 points, or 0.28 percent, to 12,736.29.

The Standard & Poor's 500 Index slipped 2.22 points, or 0.16 percent, to 1,352.46.

The Nasdaq Composite Index was off 5.56 points, or 0.19 percent, to 2,931.77.

In the United States, investors were bringing their attention closer to home with Alcoa's results after the closing bell.

The aluminum producer reported a second-quarter net loss as the price of metal slumped but earnings excluding items beat expectations. Alcoa's shares edged higher in afterhours trading.

"We think (second quarter) earnings for the S&P 500 will be OK this quarter ... we're calling for a small 2 percent beat. That said, we expect the tone of earnings season to be quite negative," said Jonathan Golub, chief strategist at UBS.

Corporate outlooks are at their most negative in nearly four years and companies that have already reported have shown lackluster growth. Nearly two dozen S&P firms have already cited Europe's woes - which seem to be worsening - as a concern.

Three top U.S. Federal Reserve policymakers laid the groundwork for a third round of bond purchases, or quantitative easing, to prop up the struggling economy.

Still, divisions were evident as Richmond Fed President Jeffrey Lacker reiterated his opposition to a new bout of stimulus.

Meanwhile, European Central Bank President Mario Draghi kept the door open to further interest rate cuts after the ECB cut its key rate to a record low 0.75 percent last week.

Expectations the U.S. central bank will unleash QE3 pushed Treasury debt prices higher, with benchmark yields hovering above historic lows. The benchmark 10-year U.S. Treasury note was up 12/32 in price for a yield of 1.52 percent.

"Economic momentum is trending lower," said Sharon Stark, chief fixed income strategist at Sterne Agee & Leach in Birmingham, Alabama. "Traders are preparing for another round of quantitative easing after three straight months of below-consensus jobs growth."

Crude oil prices climbed as a strike by workers and a planned lockout by companies threatened to completely shut Norway's crude oil production.

Brent rose $2.04 to $110.23 a barrel and U.S. crude settled up $1.54 at $85.99. - Reuters

In the afternoon Reuters reported

GLOBAL MARKETS-Shares edge lower after weak China imports TOKYO: Asian shares eased on Tuesday after Chinese import growth slowed sharply in June, underscoring weakness in domestic demand in the world's second-largest economy and adding to concerns about deteriorating global economic conditions.

China's imports rose 6.3 percent in June from a year ago, less than half the forecast of a 12.7 percent rise, while exports grew 11.3 percent on the year, faster than expectations for a 9.9 percent increase.

Demand for Chinese goods in June was well off the historical pace in part because the U.S. economy has not fully recovered, a senior Chinese customs official said on Tuesday.

MSCI's broadest index of Asia-Pacific shares outside Japan gave up slight early gains to inch down 0.3 percent, after slumping 1.6 percent on Monday for its biggest daily loss in about a month.

Japan's Nikkei average fell 0.1 percent, reversing a rise in the morning as the Chinese data weighed on the market.

Hong Kong and Shanghai shares also relinquished early gains, with Shanghai stocks falling 0.3 percent and Hong Kong down 0.2 percent after the Chinese numbers. Both markets suffered their steepest drops in five weeks on Monday, after weaker-than-expected inflation data raised fears of softening consumer demand in China.

"The more worrying sign is the slowdown in imports ... It reinforces worries about the slowdown in the Chinese economy," said Li Wei, an economist at Standard Chartered in Shanghai.

"As long as the country can maintain 5 to 10 percent growth in exports and imports, it will be able to keep a relatively healthy labour market. In the short term, the (stock) market will continue to see some downward pressure," Li said.

The data so far will likely keep risk sentiment firmly in check, with China's second-quarter gross domestic product report due on Friday likely to show the lowest growth in at least three years.

The Chinese trade data pushed Australian shares into negative territory, down 0.4 percent from up 0.2 percent prior to the release, while weighing on the Australian dollar, which eased to around $1.0170 from $1.0203.

China is Australia's single largest market and its currency is typically associated with investor risk appetite.

While the data did little to ease worries about fragile economic conditions around the world, it was not sufficient to decisively tip the risk balance towards a hard landing, said Hirokazu Yuihama, a senior strategist at Daiwa Securities.

"Firm exports suggest external demand, probably mainly in the United States, has emerged from its worst phase and is picking up, partially offsetting weak domestic demand," Yuihama said.

"It's not a bad enough number to heighten the risk of a hard landing and is not likely to prompt much further selling in the markets, which have already priced in concerns over slowing growth," he said.

EUROPE STANDS STILL

The euro, which hit a two-year low of $1.2225 in early Monday Asian trade, was down 0.2 percent at $1.2290 .

Europe's three-year debt crisis has dragged down economic activity around the world, ushering in the current deterioration in global growth and undermining investor appetite for risk.

Euro zone ministers agreed early on Tuesday to grant Spain an extra year, until 2014, to reach its deficit reduction targets in exchange for further budget savings, and set the parameters of an aid package for Madrid's ailing banks.

But they remained far from pinning down details of bank rescues and emergency bond-buying that are of imminent concern to markets.

A surprise bare-bones agreement reached in late June to allow euro zone rescue funds to buy sovereign bonds issued by struggling states and to establish a European banking supervisor was aimed at breaking the link between banks and sovereigns.

But disappointment over a lack of swift follow-up action has pushed Spanish 10-year yields back above the 7 percent level, seen as unsustainable, and put upward pressure on yields in Italy and France.

"Markets have now repriced the linkage between the Spanish Sovereign and its banks, l eading to jitters," said Sebastian Galy, strategist at Societe General, adding that the euro still has the potential to fall further against the dollar regardless of short covering risk.

Oil fell after the Chinese data, retreating from Monday's rally, with U.S. crude down 1.3 percent at $84.87 a barrel.

Brent plunged 1.7 percent to $98.62 on the Chinese data and on Norway's government ordering a last-minute settlement on Monday in a dispute between striking oil workers and employers to alleviate market fears over a full closure of its oil industry and a steep cut in Europe's supplies. - Reuters

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