European and Asian stocks fell after Chinese factory-gate prices matched their biggest slump since the global financial crisis. Higher-yielding currencies got a boost as traders cut bets on a Federal Reserve interest-rate increase this month to a new low.
The Stoxx Europe 600 Index fell for a third day as speculation of further government stimulus measures failed to boost Chinese shares. Nasdaq 100 Index futures fell after forecasts from Intel Corp. and ASML Holding NV underscored headwinds for the chip industry. Copper and nickel fell as U.S. crude oil retreated from near $47 a barrel. New Zealand’s dollar advanced with German bunds after the weak China price data saw odds of an October Fed liftoff plunge to just 6 percent.
China's record streak of falling factory-gate prices coincides with a period of weak global growth.
“Prolonged weak inflation will not only weigh on firms’ profits and add to their debt burdens, but also lead to poor market expectations regarding incomes and prices,” Jing Li, an economist at HSBC Holdings Plc wrote in a note after the data release. “This may further exacerbate deflationary pressures in the coming months. Therefore, we believe more decisive policy easing is needed to counter deflation risks.”
China sold 10-year bonds with the lowest coupon since 2008 as consumer inflation came in below estimates and factory gate deflation extended a record stretch of declines, signaling the People’s Bank of China still has room to ease monetary policy. The data follows a report Tuesday that showed a collapse in imports to the world’s No. 2 economy that’s transmitting the slowdown to other economies. JPMorgan Chase & Co., the first of the big U.S. banks to report earnings, posted below-estimate profit and a drop in revenue late on Tuesday.
Stocks
The Stoxx Europe 600 Index fell 0.9 percent by 8:16 a.m. in London, as carmakers and materials producers led losses, followed by technology shares.
ASML retreated 6.4 percent. Europe’s largest semiconductor-equipment maker, forecast sales that missed analysts’ estimates after customers delayed chip machine orders on slowing personal-computer and smartphone demand.for a second day yesterday after capping its longest stretch of gains since July.
The Asia-Pacific gauge dropped 1.2 percent. The Hang Seng China Enterprises Index slid 1 percent in Hong Kong, while the Hang Seng Index retreated 0.8 percent. The Shanghai Composite Index dropped 0.9 percent, its first declines in five days, after swinging in the aftermath of the data release.
Japan’s Topix index retreated 2.2 percent for its biggest one-day drop this month. Australia’s S&P/ASX 200 Index slipped 0.1 percent, falling a third day, as the Kospi index in Seoul dropped 0.5 percent.
S&P 500 Index futures were little changed following a 0.7 percent retreat in the U.S. benchmark, its second retreat in 11 days. Nasdaq 100 index contracts dropped 0.1 percent.
Currencies
The Bloomberg Dollar Spot Index, a gauge of the U.S. currency against 10 major peers, was little changed. The euro, which climbed 0.2 percent Tuesday, gained 0.3 percent to $1.1416.
Canada’s dollar advanced 0.2 percent and the kiwi strengthened 0.9 percent, with South Africa’s rand climbing 0.8 percent. Norway’s krone increased 0.3 percent, while the U.K. pound put on 0.2 percent.
Singapore’s dollar snapped a two-day drop, rising 0.9 percent after the city state’s monetary authority, the only advanced economy regulator to use the exchange rate as a key policy tool, said it would “slightly” reduce the pace of the currency’s appreciation versus those of its trading partners.
The Australian dollar, normally seen as a bellwether for China, weakened to 72.31 U.S. cents after sinking 1.6 percent Tuesday, its steepest one-day drop since Aug. 24. Australian 10-year bond yields dropped seven basis points after Westpac Banking Corp., the nation’s second-biggest lender, announced an increase in home loan interest rates.
Westpac’s move could drag on the economy and prompt the central bank to continue easing monetary policy, according to Shane Oliver, global strategist at AMP Capital Investors Ltd. in Sydney, which manages $112 billion.
The yen, which typically strengthens during bouts of risk aversion, climbed to 119.73 per dollar after gaining 0.4 percent the past two days.
Bonds
German bunds rallied, with the yield on 10-year notes falling three basis points to 0.56 percent. Rates on similar-maturity securities from France and the U.K. also dropped at three basis points.
China sold $4.4 billion of 10-year notes at a coupon of 2.99 percent on Wednesday, according to a statement posted on the China Central Depository & Clearing Co. website. The rate was lower than the 3.1 percent median estimate in a Bloomberg survey and the least for new offerings since December 2008.
“Given the tepid economic expansion and the low inflation, there’s ample room for further easing,” said Xu Yuehong, a Shanghai-based analyst at Bank of Communications Co.’s financial markets department. “The bull run in the bond market will probably remain intact in the fourth quarter.”
Defaults in China are expanding as the nation’s debt market flashes danger signs like equities did before their tumble began four months ago. Credit-default swaps on China’s sovereign debt surged last month to a two-year high at 133 basis points. They rose 3.5 basis points Tuesday, the most in two weeks, to 113 basis points.
Baoding Tianwei Yingli New Energy Resources Co., whose majority holder was until last year the world’s biggest solar panel company by shipments, failed to make a complete payment on a note due Tuesday. Its the fifth company to default in China’s onshore bond market this year, according to China International Capital Corp. Sausage maker Nanjing Yurun Foods Co. said Monday it’s not sure if it can repay a note due next week.
Commodities
Gold for immediate delivery advanced 0.5 percent to $1,174.40, touching the highest level since July 6. Bullion prices have rebounded from a five-year low as investors see less chance of higher U.S. borrowing costs this year. A rate increase damps the appeal of gold as it doesn’t pay interest.
source: Bloomberg
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