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Wellington - Global stocks declined for a second day, weighed down by European banks and turbulence in Japan’s markets after the government’s fiscal plan underwhelmed investors.
Commerzbank led Europe’s banking shares lower as Germany’s second-largest lender scrapped its profit target for this year and forecast a drop in earnings. Japanese shares fell the most in almost four weeks to lead a slump in Asian equities.
The yen reached a three-week high versus the dollar and Japanese bonds led a global selloff in sovereign debt. Oil rebounded after a slide that pushed it into a bear market on Monday.
Europe’s lenders were already under pressure after stress tests failed to convince investors that banking woes had been cured. That was reinforced by Commerzbank’s earnings and a slide in UniCredit after a report that the Italian lender may consider raising capital.
At the same time, central banks and governments around the world are striving to shore up growth.
The Reserve Bank of Australia lowered its benchmark lending rate to a record 1.5% at a meeting Tuesday in a decision predicted by 20 of 25 economists.
"There doesn’t seem to be much confidence for banks making profit in this low-cost environment," said Guillermo Hernandez Sampere, the head of trading at MPPM EK.
"Oil prices were one of the main subjects in Q1 and now it’s back, but the situation hasn’t changed. There’s still too much being produced by the large oil countries."
Stocks
The MSCI All-Country World Index fell 0.3% as of 7:20 a.m. in New York, while the Stoxx Europe 600 Index slipped 1%.
Commerzbank tumbled 8.3% and UniCredit slid 4.7% as Il Messaggero reported that the lender may consider a capital increase of as much as €8bn. Royal Dutch Shell lost 1.6%, pulling crude producers lower.
Metro AG dropped 7.2% after reporting third-quarter sales and profit that missed estimates because of swings in currencies. Deutsche Lufthansa AG declined 3.3 percent after saying that average ticket prices fell in the second quarter due to a combination of lower demand stemming from terrorist attacks and excess capacity across the airline industry.
S&P 500 futures dropped 0.3%, signalling US equities will extend losses into a second day after erasing gains in late trading on Monday.
Investors will look to economic data on Tuesday for indications of the strength of the world’s biggest economy and the likely trajectory of interest rates, with releases on personal income and spending forecast to show continued expansion for June.
Earnings will also be in focus, with American International Group among companies posting results. About 57% of S&P 500 members that have reported so far beat sales projections, while 80% topped profit forecasts. Analysts estimate profit at S&P 500 companies fell 3.2% in the second quarter.
The MSCI Emerging Markets Index fell 0.5%, with equity benchmarks in Abu Dhabi, Dubai, Russia and Saudi Arabia sliding more than 1%. Shares in Shanghai rebounded 0.6% from a one-month low. Hong Kong’s market was shuttered by a typhoon.
Banks led Polish stocks up 3.2%, the biggest rally worldwide. Central bank Governor Adam Glapinski said proposals to exchange Swiss-franc mortgages into the local currency envisage gradual conversion through regulatory changes.
Currencies
The yen jumped 0.6% to 101.81 per dollar as the government announced ¥4.6trn ($45bn) in extra spending for the current fiscal year, accounting for about a quarter of the total amount Prime Minister Shinzo Abe flagged in a speech last week. The currency touched the strongest level since July 11.
“The market is buying the rumour and selling the fact, so the yen has rallied after the headlines,” said Mansoor Mohi-uddin, a Singapore-based strategist at Royal Bank of Scotland Group. The announcement was another sign, after the central bank’s meeting last week, that officials are failing to beat expectations, he said.
The Bloomberg Dollar Spot Index, a gauge of the greenback against 10 peers, fell for the fifth time in six days.
The Australian dollar advanced 0.5% to 75.72 US cents, reversing earlier declines. While Australia’s economy has grown faster than the central bank predicted, core inflation and wage growth are both at record lows.
Malaysia’s ringgit weakened 0.3%, the biggest decline after the South African rand among emerging-market currencies. The country loses 450m ringgit ($111m) in annual income for every $1 drop in oil and the nation derives about a fifth of its revenue from energy-related sources, according to government data.
Poland’s zloty jumped, recording one of just two gainers versus the yen among 31 major currencies tracked by Bloomberg.
Bonds
Pacific Investment Management Company says a record-setting rally in long-term Japanese government bonds has likely run its course because the central bank has pushed monetary policy as far as it can.
"We have probably seen the low of the yield of the super long JGBs," Tomoya Masanao, Pimco’s head of portfolio management in Japan, wrote in an e-mail Monday.
"The BOJ hit its limit,” he wrote in a report on the company’s website last week.
Japan’s 10-year yield rose 8 1/2 basis points to minus 0.06%, spurring similar moves across the world after demand fell at an auction on Tuesday. It has increased 23 1/2 basis points since July 27, the steepest four-day increase since May 2013.
Treasury 10-year note yields increased three basis points to 1.56%, after rising seven basis points on Monday.
Bond yields also rose across the euro-area, with that on benchmark German 10-year bonds increasing six basis points to minus 0.038%.
Australia’s 10-year bond yield fell 5.5 basis points to an unprecedented 1.823%.
Commodities
West Texas Intermediate crude was 1.3% higher at $40.59 a barrel after sliding to its lowest settlement price since April 18 on Monday. Futures have retreated about 22% from a peak reached in June, meeting the common definition of a bear market.
While American crude and gasoline inventories are forecast to have declined last week, they’ll likely remain around the highest seasonal level in at least two decades.
Nigeria has also resumed payments to former militants as the government seeks to establish a cease-fire after attacks cut the country’s oil output to the least since 1989. Factions in Libya have reached a deal to re-open oil terminals.
Gold headed for its longest stretch of gains since early July, advancing 0.4% to $1 358.01 an ounce.
Copper advanced 0.3%, while aluminium gained 0.3% and nickel rallied 0.9%.
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