US Stocks, Commodities Decline as Bonds Gain on Dubai Crisis
Nov. 27 (Bloomberg) -- U.S. and emerging-market stocksslumped and commodities dropped as Dubai’s attempt to delay debtrepayments unnerved investors. Treasuries and the dollar rosewhile credit-default swaps surged.
The Standard & Poor’s 500 Index slid 1.7 percent at 1 p.m.in New York and the MSCI Emerging Markets Index slipped 1.9percent. The Chicago Board Options Exchange Volatility Index,the equity-derivatives benchmark known as the VIX, surged 21percent. Two-year Treasury yields fell to the lowest level sinceDecember. Oil and copper tumbled and gold fell for the firsttime in 10 days as the Dollar Index advanced. Credit-defaultswaps tied to debt sold by Dubai rose 105 basis points to 646,according to CMA DataVision.
“The world’s going to test now how much this means topeople’s risk-taking attitude,” said Donald Ross, theCleveland-based global strategist for Titanium Asset ManagementCorp., which manages $9 billion. “This is a big enough deal forpeople to question how far and how fast we’ve come.”
Dubai World, the government investment company burdened by$59 billion of liabilities, sought this week to delay repaymenton much of its debt. The yen pared its advance after Japan’sFinance Minister Hirohisa Fujii said he may contact the U.S. andEurope to act on currencies, signaling concern that the yen’sascent will hurt the economy by crimping exports.
U.S. stock exchanges closed at 1 p.m. in New York, threehours early.
Asia, Europe Stocks
The MSCI Asia Pacific Index slid 3.1 percent, the biggestdrop since August, extending a rout in Europe yesterday thatsent the Dow Jones Stoxx 600 Index to its steepest one-day slumpsince April. The MSCI World Index fell 1 percent, bringing itstwo-day drop to 2.3 percent. The Dow Jones Industrial Averageslid 1.5 percent, after U.S. markets were closed yesterday forThanksgiving.
South Korea’s Kospi index slid 4.7 percent and Taiwan’sTaiex lost 3.2 percent. Samsung Engineering Co. tumbled 9.8percent, leading declines among construction stocks in Seoul onconcern orders may slow in the United Arab Emirates, the biggestoverseas market for South Korean builders.
Dubai’s attempt to delay debt payments prompted investorsto buy assets deemed safe and sell riskier ones. Treasury two-year notes rallied, driving their yields down 0.06 percentagepoint to 0.68 percent, the lowest in 11 months. The VIX, whichtends to rise when investors are less willing to take risks,jumped as much as 27 percent in the biggest intraday gain sinceOct. 30.
‘Risk Aversion’
“We’re bound to see a rise in risk aversion,” Arnab Das,the head of market research and strategy at Roubini GlobalEconomics, said in an interview from London. “The Dubaisituation signifies that although the major central banks aroundthe world have stabilized the financial system, they can’t makeall the excesses simply disappear. We still have to work outthose balance sheet stresses.”
The MSCI World has rallied 66 percent since March 9, andthe S&P 500 has climbed 61 percent in the steepest rally sincethe Great Depression. The rebound came as the Federal Reservespent, lent or guaranteed $11.6 trillion and held interest ratesnear zero to unlock credit markets and end the firstsimultaneous recessions in the U.S., Europe and Japan sinceWorld War II.
Europe’s Stoxx 600 reversed a decline of as much as 1.8percent and gained 1.2 percent, giving it a two-day decline of2.2 percent. Royal Bank of Scotland Group Plc, which JPMorganChase & Co. says was Dubai World’s biggest loan arranger sinceJanuary 2007, gained 5.2 percent in London after plunging 7.8percent yesterday.
Oil, Copper, Gold
Oil fell 2.4 percent to $76.08 a barrel in New York. Copperlost 2.2 percent to $3.1265 a pound. Gold retreated 1.2 percentto $1,174.30 an ounce. The Dollar Index rose 0.3 percent to75.04.
Dubai, which borrowed $80 billion in a four-yearconstruction boom to transform its economy into a regionaltourism and financial hub, suffered the world’s steepestproperty slump in the worst global recession since World War II.Home prices fell 50 percent from their 2008 peak, according toDeutsche Bank AG.
“If Dubai has to default, that could start a wave ofdefaults in other areas,” Mark Mobius, the chairman ofTempleton Asset Management Ltd. who oversees $25 billion inemerging-market assets, said in an interview on BloombergTelevision from Hanoi. “This may be the trigger to allow forthe market to take a rest and pull back.”
Debt Swaps
Credit-default swaps on emerging-market government andcorporate bonds jumped, with contracts on Qatar adding 6 basispoints to 120 and Abu Dhabi rising 19 to 178, according to CMADataVision prices. Default swaps on DP World Ltd., the MiddleEast’s biggest port operator, rose 132 basis points to 740,according to CMA. Swaps on Malaysian government bonds rose 11basis points to 115 and those on Thailand climbed 6 to 116.
Default swaps pay the buyer face value in exchange for theunderlying securities or the cash equivalent should a borrowerfail to adhere to its debt agreements.
Dubai’s debt woes may worsen to become a “major sovereigndefault” that roils developing nations and cuts off capitalflows to emerging markets, Bank of America Corp. said.
“One cannot rule out -- as a tail risk -- a case wherethis would escalate into a major sovereign default problem,which would then resonate across global emerging markets in thesame way that Argentina did in the early 2000s or Russia in thelate 1990s,” Bank of America strategists Benoit Anne and DanielTenengauzer wrote in a report.
$1.7 Trillion
Writedowns and losses at banks around the world have risento more than $1.7 trillion since 2007 as the credit crisisundermined the value of assets owned by financial institutions,according to data compiled by Bloomberg.
The dollar rose against most major counterparts as Dubai’sattempt to delay debt spurred investors to sell higher-yieldingassets funded with the currency.
The yen declined against the dollar after touching a 14-year high on speculation Japan will intervene after FinanceMinister Hirohisa Fujii said he will contact U.S. and Europeanofficials about exchange rates if needed. The Bank of Japanchecked rates at commercial banks in Tokyo, seen as a type ofverbal intervention, Kyodo News Service reported. The dollar’sgain was reduced as global equity markets pared losses.
“People are scared and concerned about possibleintervention,” said Yasutoshi Nagai, chief economist at DaiwaSecurities SMBC Co. in Tokyo. The Bank of Japan may sell the yen“and buy Treasuries, which will be a plus for Treasuries,” hesaid. Central banks intervene by buying or selling theircurrencies after sudden movements.
To contact the reporter on this story:Mark Gilbert in London at magilbert@bloomberg.net;Paul Sillitoe in London at psillitoe@bloomberg.net.
Last Updated: November 27, 2009 13:29 ESTSource: Bloomberg
« Back to Business News
Related News
-
US Stocks, Commodities Decline as Bonds Gain on Dubai Crisis Nov 27, 2009 @ 11:47 AM
Nov. 27 (Bloomberg) -- U.S. and emerging-market stocksslumped and commodities dropped as Dubai’s attempt to delay debtrepayments unnerved investors. Treasuries and the dollar rosewhile credit-default swaps surged.
-
Treasuries, Dollar Rise While Stocks, Commodities Prices Slump Nov 27, 2009 @ 11:47 AM
Dec. 7 (Bloomberg) -- Treasuries advanced, the dollargained versus the euro while stocks, gold and oil declined afterFederal Reserve Chairman Ben S. Bernanke said the U.S. economyfaces “significant headwinds” and inflation “could move lower.”
-
Yen, Dollar Rise on Rate Outlook; Stocks, Commodities Decline Nov 27, 2009 @ 11:47 AM
Dec. 7 (Bloomberg) -- The yen strengthened and the dollarrose the most in a month against the euro, as investors weighedwhether the world economy is recovering fast enough to warranthigher central bank interest rates. U.S. stock index futures andcommodities fell.
-
Stocks, Commodities Rise on Dubai, China; Dollar Weakens Nov 27, 2009 @ 11:47 AM
Dec. 1 (Bloomberg) -- Stocks rallied from Shanghai to NewYork and the dollar slid as Dubai World said it’s in talks torestructure less than half its debt and Chinese manufacturinggrew at the fastest pace in five years. Treasury 10-year notesdropped for the first time in six days.
-
Stocks, Metals Rise on Dubai Debt Talks, Manufacturing Orders Nov 27, 2009 @ 11:47 AM
Dec. 2 (Bloomberg) -- Stocks gained from London to HongKong as concern about Dubai’s debt delay eased and metals pricesrose after U.S. manufacturing expanded for a fourth straightmonth.
