Stocks drop on Greek referendum
Updated: 2011-11-02 07:55
SINGAPORE / HONG KONG - Stocks sank, the euro fell a third day against the dollar and German government bonds jumped after Greek Prime Minister George Papandreou pledged to hold a referendum on the European Union's latest bailout plan for the nation.
The MSCI All Country World Index dropped 1.3 percent as of Tuesday morning in London and the Stoxx Europe 600 Index sank 1.8 percent. Standard & Poor's 500 Index futures lost 1.4 percent. The euro weakened 0.7 percent to $1.3765. Australia's dollar slumped 1.3 percent after the central bank cut interest rates. German 10-year bund yields decreased 17 basis points to 1.86 percent. Oil retreated for a third day. Copper fell 1.7 percent.
Papandreou's referendum gambit risks pushing the country into default if voters reject the EU's financial accord. G20 leaders will gather on Thursday and Friday for a summit in Cannes, France, to discuss the debt crisis. Stocks and commodities also retreated as China's manufacturing and South Korean exports expanded at the slowest pace since 2009, adding to signs global economic growth may falter.
"Markets are taking a second look and they see a lot of gaps" in Europe's debt accord, Hans Goetti, chief investment officer for Asia at Finaport Investment Intelligence, said. "The fundamentals point in the direction of a recession in the US and Europe and in recessionary times, you do have earnings downgrades. The market has some downside going into 2012."
Just 10 stocks gained in the Stoxx 600, which extended a two-day, 2.4 percent slump. Credit Suisse Group AG slumped 6.5 percent after the Swiss bank reported earnings that missed analysts' estimates.
The MSCI Asia Pacific Index sank 1.9 percent. Among the 397 companies that have released quarterly results on the MSCI regional index, 209 have missed analysts' profit estimates, compared with 124 that beat forecasts, data compiled by Bloomberg show.
Panasonic Corp sank 5.1 percent after the maker of Viera televisions forecast its biggest annual loss in 10 years. Harvey Norman Holdings Ltd dropped 3.7 percent in Sydney after Australia's largest electronics retailer estimated pretax profit slumped 19 percent in the last quarter.
Futures signal the S&P 500 may extend Monday's 2.5 percent retreat. The gauge still rallied 11 percent in October, the biggest monthly increase since December 1991.
Treasury 10-year yields decreased one basis point to 2.10 percent, after sliding 28 basis points in the previous two days.
The euro extended Monday's 2.1 percent loss against the dollar amid speculation that the region's manufacturing shrank for a third month. That may add pressure on the European Central Bank to consider cutting interest rates as early as its next policy meeting on Thursday.
Papandreou also told lawmakers he'll seek a vote of confidence in parliament. The referendum on the EU accord, which called for a 50 percent write-down on Greek debt as well as an expansion of the region's bailout fund, will likely be held after details are wound up, Papandreou said.
"Investors are looking at the details of the European deal and they're not satisfied," Russ Koesterich, the San Francisco-based global chief investment strategist for the IShares unit of BlackRock Inc, said in a Bloomberg Television interview. "The problem is the same one we've been facing since April 2010: The deal tends to piecemeal, it tends to be complex and it doesn't provide the finality that investors have been looking for."
The yen declined as much as 1.1 percent to 78.99 a dollar before trading at 78.10. Japanese Finance Minister Jun Azumi said in Tokyo he will "continue to intervene until I am satisfied," after yen sales on Monday that Credit Suisse Group AG analysts estimated may have exceeded $50 billion.
The cost of protecting Asia-Pacific corporate and sovereign bonds from default rose, with the Markit iTraxx Australia index increasing 13 basis points to 173 basis points, according to Westpac Banking Corp. The gauge is set for its biggest increase since Oct 4, according to data provider CMA, after rising 10 basis points on Monday by New York close of trading.
The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan jumped 10 basis points to 189.5 basis points, BNP Paribas SA prices show, while the Markit iTraxx Japan index rose eight basis points to 169.5, according to Deutsche Securities Inc.