Friday, December 12, 2008

Global Stocks, Dollar Tumble as Auto Bailout Fails; GM Slumps

By Chen Shiyin and Adam Haigh

Dec. 12 (Bloomberg) -- Stocks tumbled around the world and the dollar slumped after the Senate rejected a bailout for American automakers, threatening to deepen the global recession. Treasuries rallied and yields fell to record lows.

The MSCI World Index lost 1.8 percent to 876.62 as of 8:06 p.m. in New York after senators voted down a bill to provide $14 billion of emergency funds for General Motors Corp. and Chrysler LLC. GM plunged 37 percent, while Honda Motor Co. and Daimler AG sank more than 8 percent. The dollar fell to a 13-year low against the yen and the cost of protecting corporate bonds against default soared. Metals and crude oil slumped.

“The markets are in a very dire situation and are in a very risk-averse situation,” said Robert Drijkoningen, The Hague-based head of the multi-asset group at ING Investment Management, which has $488 billion under management. “The short-term is bleak,” he said on Bloomberg Television.

Standard & Poor’s 500 Index futures sank 4 percent, indicating the benchmark for U.S. equities will extend yesterday’s 2.9 percent drop. Europe’s Dow Jones Stoxx 600 Index lost 4.5 percent, while the MSCI Asia Pacific Index fell 3.7 percent.

“It’s over with,” Senate Majority Leader Harry Reid said on the Senate floor in Washington last night. “I dread looking at Wall Street tomorrow. It’s not going to be a pleasant sight.”

The dollar headed for a sixth week of declines versus the yen, while investors sought the safety of government bonds in the U.S., Europe and Japan. The cost of default protection climbed throughout the European auto industry.

‘Betrayed Again’

The MSCI Emerging Markets Index lost 3.6 percent, extending its 2008 drop to 56 percent. China’s CSI 300 Index sank 4.2 percent after a government official said growth will slow more sharply next quarter.

The MSCI World Index of 23 developed markets has slid 45 percent this year as almost $1 trillion in bank losses and writedowns froze credit markets and pushed the U.S., Europe and Japan into the first simultaneous recessions since World War II. Spending plans by governments from the U.S. to Australia spurred a 14 percent rally in the index since Nov. 20.

The S&P 500 earlier this week had marked a technical end to a 14-month bear market, extending its rebound from an 11-year low last month to as much as 21 percent, as President-elect Barack Obama stepped up efforts to pull the economy out of a recession.

“Investors have been betrayed again by U.S. politicians,” said Yasuhiro Miyata, who helps manage about $109 billion at DIAM Co. in Tokyo. “Even with the knowledge that we are in the midst of a crisis, they were unable to come to an agreement and investors have decided to abandon ship.”

GM, Ford, BMW

GM slid 37 percent to $2.65, while Ford Motor Co. lost 25 percent to $2.18 in pre-market trading in New York. Daimler sank 8.5 percent to 22.98 euros and Bayerische Motoren Werke AG fell 3.8 percent to 21.595 euros.

The U.S. is the No. 1 market for BMW and the second-biggest for Daimler’s Mercedes-Benz. Both carmakers have factories there, and while they and other German brands control about 7 percent of the American market, they compete more with each other than with GM and Ford.

A collapse of GM and Chrysler “is worrisome for the U.S. in particular, but we are in a synchronized world so it will have an impact elsewhere,” said Franz Wenzel, Paris-based deputy director for investment strategy at Axa Investment Managers, which oversees $770 billion. “It puts into question any chance of a U.S. recovery that we had expected from mid-2009 onwards.”

Nokian Renkaat Oyj slumped 13 percent to 7.99 euros. The Nordic region’s biggest tiremaker said fourth-quarter sales have been weaker than expected.

Honda, Japan’s second-largest automaker, tumbled 12 percent to 1,921 yen, the largest drop since Oct. 31. Hyundai Motor Co., South Korea’s No. 1 automaker, fell 9.3 percent to 42,000 won.

‘Potential Failure’

“A potential failure in U.S. automakers will have immediate reverberations throughout the U.S. economy, which will affect demand for Asian products and add to recessionary pressures,” said Shane Oliver, Sydney-based head of investment strategy at AMP Capital Investors, which has $81 billion.

Denso Corp., the world’s biggest listed auto-parts maker, plunged 12 percent to 1,430 yen. Aisin Seiki Co., Japan’s largest maker of car transmissions, sank 13 percent to 1,116 yen.

The U.S. dollar weakened to 88.53 against the yen, the lowest since Aug. 2, 1995, before trading at 90.35 in New York. Credit-default swaps, contracts conceived to protect bondholders against default, on the Markit iTraxx Europe index of 125 companies with investment-grade ratings increased 11.5 basis points to 211, according to JPMorgan Chase & Co. prices in London. That’s up from about 50 basis points at the start of the year.

Credit-default swaps on Volkswagen AG, Europe’s biggest carmaker, climbed 81.5 basis points to 383, CMA Datavision prices show.

Platinum, Oil

Platinum, used to make catalytic converters for car and truck exhaust systems, fell as much as 3.4 percent in London, while gold slipped from its highest in more than two weeks. Crude oil dropped as much as 7.2 percent, trimming yesterday’s 10 percent rally.

Yields on 10-year Treasury notes declined to 2.48 percent, the lowest level since 1954.

“Treasuries are clearly showing signs of flight to quality as people generally expected the bailout to succeed,” said Kevin Yang, who helps oversee about $1 billion of U.S. bonds in Taipei at Shinkong Life Insurance Co. “Yields will go lower in the very short-term as stocks test new lows.”

Canon Inc., the world’s biggest digital-camera maker, declined 5.8 percent to 2,590 yen. The number of Americans filing first-time claims for unemployment benefits surged to the highest level since November 1982, a report showed yesterday.

‘Lose Your Job’

“If you lose your job, you don’t spend. If you see others lose their jobs, you don’t spend either,” said Daphne Roth, the Singapore-based head of equity research at ABN Amro Private Bank, which manages about $27 billion of Asian assets.

China’s growth will slow more sharply in the first quarter of 2009 before stabilizing and then recovering, Liu He, vice minister of the Central Leading Group on Financial and Economic Affairs said in Beijing today. China Mobile, the world’s biggest phone company by value, lost 4.7 percent to HK$78.50.

Today’s drop left the MSCI World trading at 11.4 times the earnings of its 1,694 companies, compared with this decade’s average ratio of 26.5. The worst global financial crisis since the Great Depression pushed the gauge’s value down to 10.5 times profit on Oct. 27, the cheapest in at least 13 years, data compiled by Bloomberg show.

The S&P 500 currently trades at 18.9 times earnings, while the Stoxx 600 is valued at 8.9.

Bank stocks led today’s drop in the European benchmark, losing 8.4 percent. HBOS Plc slumped 22 percent to 68.5 pence after the U.K. bank that is being taken over by Lloyds TSB Group Plc said this year’s charge for bad loans rose to 5 billion pounds ($7.5 billion), led by an increase in corporate delinquencies that was worse than analysts forecast. Lloyds decreased 17 percent to 131.8 pence.

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