In the U.S.: Stocks, Commodities Drop as China Growth Slows; Treasuries Gain

20 March 2012


Good day for fixed income? China’s growth concerns put a damper on stock futures.

Stocks and commodities declined after China raised fuel prices by the most in two years and BHP Billiton Ltd. said the nation’s steel production is slowing. Treasuries advanced for the first time in 10 days.

The MSCI All-Country World Index fell 0.6 percent at 12:35 p.m. in London, retreating for the first time in four days, and Standard & Poor’s 500 Index futures slipped 0.5 percent. The S&P GSCI commodities gauge declined 1 percent. The yield on the 10-year Treasury (USGG10YR)dropped three basis points to 2.35 percent and the dollar gained against all but one of its most-traded peers.

China, the world’s biggest energy consumer and steelmaker, is raising fuel prices for the second time in less than six weeks. The nation’s vehicle sales may miss industry forecasts this year as economic growth slows, an official from the China Association of Automobile Manufacturers said. U.S. housing starts fell in February from a three-year high, the Commerce Department said today.

“There will be some sort of slowdown coming out of China and the Asian economies,” said Tim Price, who helps oversee more than $1.5 billion of assets at PFP Group LLP in London. “It can definitely take the heat out of the commodities markets.”

The Stoxx Europe 600 Index (SXXP) fell 1 percent as Bayerische Motoren Werke AG and Daimler AG slid 4.7 percent, leading a gauge of automakers to the biggest drop in two weeks.

Mercedes Deals

Mercedes dealers are offering record markdowns of 25 percent on high-end models such as the S300 sedan, according to data stretching back to 2009 at cheshi.com, which tracks prices at more than 3,000 Chinese dealerships. BMW’s 7-series and Audi AG’s A8Ls sell for 20 percent below sticker prices, waiting lists have vanished and salesmen are dangling perks ranging from free iPhones to Hermes-bag coupons.

DKSH Holding Ltd., a company that helps clients expand in Asian markets, jumped as much as 9 percent as the shares started trading in Zurich following an 821 million-Swiss-franc ($900 million) initial public offering.

The drop in S&P 500 (SPX) futures indicated the U.S. equities gauge will decline from the highest level since May 2008.

Oil fell for the first time in three days in New York, retreating 0.6 percent to $107.49 a barrel. Silver dropped 1.9 percent to $32.3275 an ounce and gold slid 1 percent to $1,648.72 an ounce.

Credit default swaps linked to China rose 8.5 basis points to 105.5 basis points, climbing from the lowest level in almost a year, according to CMA in London.

China’s Economy

Chinese Premier Wen Jiabao announced this month an economic growth target of 7.5 percent for 2012, down from an annual 8 percent over the past seven years. China’s steel production is slowing as the economy focuses more on consumers than large infrastructure projects, according to Ian Ashby, president of iron ore at BHP, the world’s third-largest exporter. David Joyce, managing director of expansion projects at Rio Tinto Group (RIO), the second-biggest iron-ore exporter, said at a conference in Perth, Australia, that the company is seeing a slowdown in China, its biggest customer.

The 10-year Treasury yield jumped 44 basis points during the nine-day run of increases. A 10th decline today would be the longest stretch since April 1974 following the OPEC oil embargo.

Federal Reserve Chairman Ben S. Bernanke delivers the first of four lectures at George Washington University, while Minneapolis Fed President Narayana Kocherlakota also speaks.

U.S. Data

U.S. builders broke ground on 698,000 homes at an annual rate, in line with the median forecast of economists surveyed by Bloomberg News and down 1.1 percent from a January pace that was stronger than previously reported, Commerce Department figures showed today.

The yield on the 10-year German bund slipped three basis points, falling for the first time in six days.

The Dollar Index, which tracks the U.S. currency against those of six trading partners, rose 0.3 percent, snapping a three-day decline. The yen depreciated against most major peers, falling 0.5 percent versus the dollar and 0.2 percent against the euro. The Australian dollar tumbled 1 percent against the greenback and dropped 0.5 percent versus the yen, falling for the first time in four days against the two currencies.

The MSCI Emerging Markets Index (MXEF) lost 0.9 percent, heading for the gauge’s fourth consecutive decline, its longest losing streak since Dec. 15 and paring its gain this year to 15 percent. The Hang Seng China Enterprises Index (HSCEI) lost 1.5 percent to close at the lowest level since Jan. 16.

OAO Gazprom fell 2.4 percent in Moscow as the Micex Index (MICEX) slid 1.3 percent. TheFTSE/JSE Africa All Shares Index (JALSH) dropped 0.8 percent in South Africa, as BHP slid 2.5 percent.

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