Very good news affecting Euro currency....(understanding market sentiment)
Stocks, Copper Fall as Euro Hits Four-Year Low on German Ban
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By Patrick Chu
May 19 (Bloomberg) -- Stocks around the world dropped and metals fell as the euro traded near a four-year low after Germany banned speculators from some bets against government bonds and banks. Treasuries and German bunds rallied.
The MSCI Asia Pacific Index lost 1.2 percent to 115.12 at 8 a.m. in London. The Stoxx Europe 600 decreased 1.1 percent to 248.55. Standard & Poor’s 500 futures fell 0.5 percent following a 1.4 percent decline in the index yesterday. The euro was little changed against the dollar after weakening below $1.22 for the first time since April, 2006. Yields on 10-year U.S. notes slid 2 basis points to 3.33 percent while 10-year bund yields fell 7 basis points to 2.75 percent. Oil slumped to a seven-month low near $68 a barrel and copper dropped 1.9 percent.
German Chancellor Angela Merkel’s government rattled investors with the new regulations by raising concerns they won’t be able to hedge their European holdings or sell assets as the region’s debt crisis worsens. The BaFin markets regulator banned investors from naked short sales -- speculating on declines in companies they don’t own -- for 10 banks and insurers, as well as naked credit-default swaps on euro-area government bonds starting today.
“It almost looked panicked, which further undermines confidence in the markets,” said Michael O’Rourke, chief market strategist at BTIG LLC in Yardley, Pennsylvania, which serves institutional investors. “They’ve done as poor a job as one can do in delivering a message.”
The rules hurt demand for European assets. The euro, which has depreciated 15 percent against the dollar this year, weakened to as low as $1.2144 before recovering at $1.2205. The pound slumped to a 13-month low of $1.4278 and the yen gained against 15 of 16 major counterparts. The German ban will last until March 31, 2011, BaFin said yesterday in an e-mailed statement.
Concern Increases
“If you don’t feel like you can sell bonds and equities in Europe, you’re left with selling the euro to express a negative view,” said Greg Gibbs, a foreign-exchange strategist at Royal Bank of Scotland Group Plc in Sydney. The ban “creates a view that the authorities sense bigger problems than what may appear on the surface, creating more nervousness and fear.”
The MSCI Asia Pacific Index has declined 11 percent from its high for the year on April 15, entering a so-called correction, as Europe’s debt crisis and concern China will quell inflation eroded investor confidence. Almost five shares fell in the index for each that rose.
Japan’s Nikkei 225 Stock Average dropped 0.5 percent. South Korea’s Kospi Index slumped 0.8 percent and Australia’s S&P/ASX 200 Index declined 1.7 percent. Hong Kong’s Hang Seng Index retreated 1.5 percent.
Share Movers
Nippon Sheet Glass Co., which gets 42 percent of its revenue from Europe, tumbled 4 percent to 242 yen in Tokyo as a stronger yen dimmed the earnings prospects for Japan’s exporters. Daiwa Securities Capital Markets Co. cut its rating on the stock to “neutral” from “outperform.” Canon Inc., a camera maker that counts Europe as its largest market, retreated 1.3 percent to 3,925 yen.
Materials companies posted the biggest declines among the MSCI Asia Pacific Index’s 10 industry groups. Woodside Petroleum Ltd., Australia’s second-largest oil and gas producer, dropped 1.8 percent in Sydney to A$42.29 after oil retreated for a seventh consecutive day, falling 1.8 percent in New York. Rio Tinto Group, the world’s third-largest mining company, fell 1.3 percent to A$63.03.
Banks Fall
Financial-services companies dropped as European deficit concerns caused the cost of protecting Asia-Pacific corporate and sovereign bonds from non-payment to rise. HSBC Holdings Plc slumped 1.8 percent to HK$72.05 in Hong Kong. Commonwealth Bank of Australia fell 2.1 percent to A$51.52 in Sydney.
The Markit iTraxx Asia index of credit-default swaps on 50 investment-grade borrowers outside Japan rose 10 basis points to 131.5 basis points, Royal Bank of Scotland Group Plc prices show.
Guangzhou R&F Properties Co., the biggest real estate company in the southern Chinese city, dropped 1.6 percent after Goldman Sachs Group Inc. downgraded Chinese developers. Shimao Property Holdings Ltd., controlled by billionaire Xu Rongmao, lost 1.1 percent. Yanlord Land Group Ltd. declined 1.8 percent.
The drops followed losses in the U.S., where the German ban overwhelmed a 1 percent rally in the S&P 500 triggered by better-than-estimated housing starts and results at Wal-Mart Stores Inc. S&P 500 futures fell 0.5 percent, indicating a lower market opening today.
Short Selling
BaFin said it will prohibit trading in credit swaps on euro-area governments that aren’t used to hedge against losses in the event the government defaults. The regulator said it was taking the step because of “exceptional volatility” in euro- area bonds. “Massive” short-selling was leading to excessive price movements which “could endanger the stability of the entire financial system.”
While short sellers borrow assets and sell them, betting the price will fall and they’ll be able to buy them later at a lower price, in naked short selling traders never borrow the assets, so the wagers are unlimited.
“This is a mistake of a serious fundamental nature and of severe consequence,” Mark Grant, managing director of Southwest Securities Inc., in Fort Lauderdale, Florida, said in a note to institutional clients. Germany is making “an obvious attempt to control financial markets across the globe by this action just as they plead for investors to provide funding,” he said.
