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Global Stocks, U.S. Index Futures Fall; Yen, Treasuries Rally
By Sarah Thompson
Nov. 20 (Bloomberg) -- Stocks slumped, sending the MSCI World Index to the lowest level since 2003, on concern bank losses will increase and corporate profits will crumble as the recession spreads. Treasuries and the yen rallied.
Deutsche Bank AG and ING Groep NV dropped at least 8 percent after Citigroup Inc.'s plan to buy troubled investment-fund assets fueled speculation of more bank writedowns. Copper declined for a third day and oil slid toward $50 a barrel, sending commodity producers lower. Treasuries rose, pushing two- year note yields to a record low as investors sought the safety of government bonds.
The MSCI World lost 1.9 percent to 805.73, the lowest since April 2003, at 12:42 p.m. in London. The MSCI Emerging Markets Index tumbled 4.5 percent, with Russia's Micex Index sliding as much as 9 percent before trading was interrupted for an hour.
``We're seeing a total collapse of trust in everything fundamental,'' said Espen Furnes, an Oslo-based fund manager at Storebrand Asset Management, which has the equivalent of $48 billion. ``There are no buyers in sight. This year will go down in history.''
European stocks and U.S. index futures pared declines after the London interbank offered rate, or Libor, for three-month loans in dollars fell for a third day and the Swiss central bank cut its key rate by 1 percentage point. Prince Alwaleed bin Talal said he plans to increase his stake in Citigroup back to 5 percent as the stock is ``dramatically undervalued.''
More than $32 trillion has been erased from the value of global equities this year as the financial-market turmoil pushes countries from Europe to the U.S. and Japan into recession.
Treasury Secretary Henry Paulson has abandoned a plan to use the Troubled Asset Relief Program to buy mortgage assets from banks, helping send U.S. financial shares lower and credit default risk to a record high yesterday.
`Undermined Confidence'
``Changing the terms of the TARP as suddenly as he did undermined investor confidence,'' said Richard Schlanger, a bond fund manager in Boston at Pioneer Investments, which oversees $44 billion. ``It's a frightening situation.''
Europe's Dow Jones Stoxx 600 Index declined 2.6 percent today, while the MSCI Asia Pacific Index slid 5.2 percent. Standard & Poor's 500 Index futures lost 1 percent.
Declines in emerging markets surpassed developed countries on concern lower metal and near $50-a-barrel oil will cripple their economies. Stocks in Russia, the world's largest energy supplier, have plunged 73 percent this year.
Turkey's announcement that it may get a bailout of between $20 billion and $40 billion from the International Monetary Fund helped limit losses, with the ISE National 100 index falling only 4.1 percent. The lira rose against the dollar.
`Bleak Picture'
Federal Reserve policy makers lowered forecasts for U.S. economic growth and employment in 2009, saying the outlook has ``worsened significantly'' since June, according to Fed records released yesterday. The U.S. economy will contract through the middle of next year, and the unemployment rate is projected to be 7.1 percent to 7.6 percent in 2009, they said.
``The Fed painted a very bleak picture of the U.S. economy and with corporate profitability continuing to come under pressure, it's a pretty gruesome mix of negativity out there,'' said Henk Potts, a London-based fund manager at Barclays Stockbrokers, which has about $45 billion under management.
The yield on the two-year U.S. note declined to 1.043 percent, a level not seen since Fed data on the figure began in 1976. Five-year returns slid to the least since 1954.
The yen rose to 95.46 against the dollar from 95.73 late yesterday in New York as investors sold higher-yielding assets funded by loans from Japan.
The MSCI World has fallen 49 percent in 2008, headed for its worst year since records began in 1970, as writedowns and credit losses topped $966 billion in the worst financial crisis since the Great Depression.
Troubled Assets
Deutsche Bank, Germany's biggest, dropped 8 percent to 19.675 francs. ING, the largest Dutch financial-services provider, slipped 8.1 percent to 5.77 euros.
Citigroup tumbled 23 percent yesterday to a 13-year low on a plan to buy $17.4 billion of troubled investment-fund assets. The value of the assets it agreed to purchase from structured investment vehicles it advises fell from $21.5 billion as of Sept. 30, reflecting market declines of $1.1 billion and $3 billion in debt that matured or was sold, the bank said.
SIVs, which Citigroup invented in 1988, emerged 15 months ago as one of the first major strains in credit markets rocked by record high foreclosures on subprime mortgages.
Citigroup has posted $65.7 billion in credit-related losses, the most after Wachovia Corp., with $96.5 billion, according to data compiled by Bloomberg.
Analysts forecast earnings for financial firms in the Stoxx 600 will drop 48 percent this year, compared with a 10 percent decline for the overall market. Profit for the industry group in the S&P 500 will tumble 70 percent, while earnings for the broader index will slip 9.5 percent, the data show.
Commodities Slump
Royal Dutch Shell Plc, Europe's largest oil company, lost 2.6 percent to 1,553 pence. Total SA, the region's third- largest, retreated 2.9 percent to 37.92 euros.
Crude for December delivery fell as much as $1.60, or 3 percent, to $52.02 a barrel in New York. Yesterday, futures touched $52.79 a barrel, the lowest since Jan. 23, 2007.
Rio Tinto Group, the world's third-largest mining company, dropped 5.3 percent to 2,138 pence. BHP Billiton Ltd., the biggest, slid 5 percent to 782.5 pence.
Copper fell as much as 3.5 percent to $3,464 a ton in London on concern supply may outpace demand as a global economic slowdown damps demand for raw materials.
Air France-KLM Group slipped 5.7 percent to 9.48 euros. Europe's biggest airline said fiscal second-quarter profit declined 49 percent because of high fuel costs and after a year- earlier gain from the sale of assets. The airline predicted operating income ``clearly in profit'' for the full year.
Asset Managers
Asset managers tumbled after UBS recommended selling the shares. Aberdeen Asset Management Plc dropped 2.4 percent to 81 pence, and BlueBay Asset Management Plc tumbled 20 percent to 108.5 pence.
UBS initiated coverage of Aberdeen and BlueBay with ``sell'' recommendations.
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Royal Ahold NV climbed 6.8 percent to 8.541 euros. The owner of Stop & Shop supermarkets in the U.S. reported third- quarter profit that beat analysts' estimates as the company lured more customers to its stores with lower prices and private-label goods.
Oriflame Cosmetics SA slid 6.3 percent to 210 kronor after Merrill Lynch & Co. lowered its recommendation on the seller of natural makeup in more than 50 countries to ``underperform'' from ``buy.''
``The black cloud hanging over Oriflame from the Russian crisis'' and the potential devaluation of the ruble ``will remain until more unknowns are known,'' London-based analysts including Nicolas Sochovsky wrote to clients.
