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Global stocks retreat on US interest rate fears Original Source Link: (May no longer be active)
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Global Stocks Retreat as Inflation Data Heightens Rate Concern
June 13 (Bloomberg) -- Stocks worldwide slumped on concern that central banks will keep raising interest rates to tame inflation, hurting corporate profits.
``We are seeing signs of growing inflation coupled with slowing growth,'' said Matthias Fankhauser, a fund manager at Bank Hofmann AG in Zurich, which oversees the equivalent of $18 billion. ``That is what the market is bracing itself for.''
BHP Billiton and Anglo American Plc, the world's largest mining companies, led the decline in Europe. Gold fell the most in 15 years, declining to below $600 an ounce.
Honda Motor Co. and Samsung Electronics Co. paced a decline by exporters in Asia. Emerging markets tumbled to a six-month low, led by Russia and Poland, as oil and copper prices slid.
U.S. stocks extended their losses for the year after government reports showed producer prices increased in May, while retail sales rose at the slowest pace in three months. Shares of commodity producers including Exxon Mobil Corp. and Alcoa Inc. fell.
Europe's Dow Jones Stoxx 600 Index slid 2.2 percent to 301.66, a six-month low. Japan's Nikkei 225 Stock Average and Australia's S&P/ASX 200 Index had the biggest point losses since September 2001.
The drop in equities spurred demand for the safety of government debt, pushing bond yields lower. The yield on the U.S. benchmark 10-year Treasury note touched 4.94 percent, the lowest since April 12, according to bond broker Cantor Fitzgerald. Yields were recently little changed at 4.97 percent.
U.S. Producer Prices
A U.S. government report today showed prices paid in May to U.S. producers for goods other than fuel and food rose the most in three months. The so-called core rate climbed 0.3 percent after a 0.1 percent increase in April. Economists surveyed by Bloomberg News expected a 0.2 percent gain.
Prices rose 0.2 percent overall after a 0.9 percent jump in April. Tomorrow, a report may show consumer prices increased 0.4 percent last month after a 0.6 percent gain the month before, a Bloomberg survey indicates.
The reports are the last inflation measures that U.S. central bank policy makers will see before a two-day meeting starting June 28.
Federal Reserve Bank of Cleveland President Sandra Pianalto yesterday became the Fed's seventh official in as many days to warn inflation was too high. The S&P 500 has declined to its lowest since November as speculation intensified that the central bank will raise rates for a 17th straight time.
`Zeal'
``The Fed is full of anti-inflationary zeal,'' said Stephen Pope, head of equity research at Cantor Fitzgerald in London. ``They will act as they see fit.''
The Bank of England may join in raising rates. Inflation in Europe's second-largest economy climbed to a seven-month high in May, the Office for National Statistics in London said. Consumer prices rose 2.2 percent from a year earlier after increasing 2 percent in April.
Governor Mervyn King, in a speech yesterday in Edinburgh, said global rates may have been too low for too long, fanning the inflation now feeding into the U.K. economy.
Sweden's annual inflation rate rose in May to 1.6 percent, the highest since December 2003, as rising energy prices pushed up housing and transport costs, Statistics Sweden said.
Concern about the effects of accelerating inflation and rising interest rates on the global economy has wiped out some $1.85 trillion in market value worldwide this month. Increases in borrowing costs leave consumers with less to spend on goods such as cars, televisions and mobile phones, and reduce demand for mortgages and loans.
`In the Wound'
``This is like putting salt in the wound,'' said Francisco Salvador, head of equities at Venture Finanzas in Madrid. ``The environment is not an easy one for stocks.''
German investor confidence fell for a fifth month in June, the ZEW Center for European Economic Research said in Mannheim. An index of institutional and analyst expectations dropped to 37.8, the lowest since July 2005, from 50 in May.
Commodity producers were the worst performers among the Stoxx 600's 18 industry groups. BHP lost 4.8 percent to 910 pence, while Anglo American fell 3.7 percent to 1872 pence.
Gold futures for August delivery tumbled 6.1 percent to $570 an ounce in New York.
Honda, Samsung Shares
Honda, Japan's third-largest automaker, dropped 4.1 percent to 6,740 yen in Tokyo. The company made 55 percent of its sales in North America in the year ended March 31, the highest percentage among Japan's three biggest automakers.
Samsung, which accounts for about 10 percent of South Korea's exports, fell 4 percent to 549,000 won.
The Morgan Stanley Capital International Emerging Markets Index, a measure of stocks in 25 developing countries, declined 4.1 percent to 666.59, heading for the lowest close since Nov. 29.
The Russian Trading System Index plummeted 9.4 percent to 1234.82, the lowest close since Jan. 18. The drop was the most since Oct. 27, 2003, when the arrest of Mikhail Khodorkovsky, the former chief executive of OAO Yukos Oil Co., spurred a 10 percent slide.
Shares of OAO Gazprom and OAO Lukoil, Russia's biggest oil companies, led today's decline as crude oil for July delivery slid 2.1 percent to $68.90 a barrel in New York.
Poland's WIG20 Index slumped 3.6 percent. KGHM Polska Miedz SA, a Polish company that mines more copper in Europe than any other company, lost 2 percent as copper prices fell for a fourth day.
India's Sensitive Index was Asia's biggest loser, slumping 4.4 percent. South Korea's Kospi Index slid 2.9 percent and Taiwan's Taiex fell 1.6 percent. The two markets have the biggest weightings in the MSCI Emerging Markets.
Nikkei Slides
The Nikkei 225 tumbled 614.41, or 4.1 percent, to 14,218.60. The average's point loss was the biggest since the day after the Sept. 11, 2001, terrorist attacks. The S&P/ASX 200 slid 127.10, or 2.6 percent, to 4838.90, the sharpest decline for the index since Sept. 17, 2001. MSCI's Asia-Pacific Index, a regional gauge, sank 3.7 percent to 116.53.
The S&P 500 fell for a third day, losing 0.2 percent to 1234.60. Best Buy, the largest U.S. electronics retailer, rose 3.9 percent to $50.94 after the company posted its biggest profit increase in a year, beating analysts' estimates.
Exxon, the world's largest publicly-traded oil company, fell 1.1 percent to $57.61. Alcoa, the No. 1 aluminum producer, declined 1.7 percent to $29.24.
Last Updated: June 13, 2006 13:40 EDT
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