Asian Stocks Decline to 10-Week Low as Fed Rate Increase Looms

Asian stocks fell, with the regional benchmark index poised for its lowest level in 10 weeks, amid concern over turbulence in the credit markets as the Federal Reserve prepares to raise U.S. interest rates.

The MSCI Asia Pacific Index fell 0.6 percent to 127.30 as of 4:01 p.m. in Hong Kong, heading for the lowest close since Oct. 2. Raw material producers led declines, overshadowing the first gain in 10 days for energy companies after oil futures rallied 1.9 percent on Monday. Equities in Hong Kong slid for a ninth straight day, the longest losing streak since 1984.

Commodities are at risk of extending declines as China’s slowdown hurts demand and the world’s largest user shifts its economic model away from raw materials, according to Stephen Roach, former non-executive chairman for Morgan Stanley in Asia.

A sense of unease prevails in global financial markets as the Fed starts its two-day policy meeting on Tuesday, with traders pricing in 76 percent odds that rates will be raised for the first time since 2006, ending the era of near-zero borrowing costs. Tightening policy would solidify the Fed’s divergence from central banks in Europe and Japan.

The prospect of more expensive cash in the U.S. and a deepening rout on commodities markets have helped erase $ 2.5 trillion from the value of global equities since Dec. 1. Bond market anxiety also has caught the notice of equity investors after Third Avenue Management froze redemptions at a high-yield mutual fund last week. Prices on U.S. high-yield bonds kept sinking Monday as London-based Lucidus Capital Partners became the latest fund to liquidate holdings as investors demanded their money back.

Source: Bloomberg

MARKET

European Stocks Drop to 10-Week Low as Miners Slide Before Fed

Declines in miners and energy producers dragged European stocks lower for a fifth session, two days before the Federal Reserve’s rate decision.

Glencore Plc and ArcelorMittal slipped at least 6.3 percent, pushing a gauge of miners to its lowest level since 2009. Tullow Oil Plc and Royal Dutch Shell Plc slid at least 3.5 percent as oil also fell. Investors have turned averse to risky assets before Wednesday’s Fed decision, and traders are pricing in a 74 percent chance that officials will then announce the first rate increase since 2006.

The Stoxx Europe 600 Index fell 1.8 percent at the close of trading, wiping out early gains of as much as 1 percent to cap its longest losing streak since July. A high-yield fund liquidating its portfolio also contributed to bearish sentiment across markets, said Benno Galliker, a trader at Luzerner Kantonalbank AG in Lucerne, Switzerland.

Italy’s FTSE MIB Index and Spain’s IBEX 35 Index were the worst performers in western-European markets, sliding 2.1 percent or more. Germany’s DAX Index lost 1.9 percent, while the U.K.’s FTSE 100 Index fell to a three-year low. All 19 industry groups on the Stoxx 600 slid, with the benchmark gauge falling below a level that technical analysts call oversold, meaning the selloff has gone too far.

The Stoxx 600 has fallen 9.3 percent in December amid a rout in commodities, concern about U.S. monetary policy tightening and disappointment over the extent of European stimulus. It’s heading for its worst final month since 2002, defying a seasonal trend that has yielded gains in five of the past six Decembers.

Among stocks active on corporate news, National Bank of Greece SA slid 30 percent on its first day of trading after completing a share recapitalization.

Old Mutual Plc and Investec Plc, which get a majority of their revenue from southern Africa, climbed at least 1.4 percent. The rand rebounded after South Africa’s president named his second finance chief in four days, backtracking on his appointment of a relatively unknown lawmaker.

Source : Bloomberg       

MARKET