World stocks fell Friday after credit downgrades slapped on Spanish banks unnerved investors already worried about the stability of the 17-country euro currency union.
The fall in European shares followed a sharp downturn in Asia where markets were also rattled by weak U.S. manufacturing figures.
The nervousness about Spain’s banks comes as the European financial crisis intensifies.
Political turmoil in Greece has increased the likelihood that it could leave the 17-country monetary union, a move that could have ripple effects throughout Europe and the world’s financial markets.
Britain’s FTSE 100 fell 0.8 percent to 5,295.30 and Germany’s DAX was 0.5 percent lower at 6,279.36. France’s CAC-40 lost 0.7 percent to 2,991.85.
But Wall Street looked set for a higher opening on Friday when shares of social media giant Facebook will start trading. Buyer demand is expected to be very strong. Dow Jones industrial futures rose 0.2 percent to 12,439 and S&P 500 futures added 0.2 percent to 1,304.40.
Markets were jolted by Moody’s downgrade Thursday of 16 Spanish banks, said Jackson Wong, vice president at Tanrich Securities in Hong Kong.
Moody’s said it took the action because the banks face a rising tide of bad loans linked to Spain’s recession, a gloomy real estate market and high unemployment.
“It’s very hard to predict how the euro crisis will evolve. All the news is bad, so investors like to stay on the sidelines even though stocks are very attractive right now,” Wong said.
Japan’s Nikkei 225 tumbled 3 percent to close at 8,611.31, its lowest finish in four months as signs of weakness in the U.S., a critical export market for Japanese companies, battered some of the country’s behemoth manufacturers.
Hong Kong’s Hang Seng dropped 1.3 percent to 18,951.85 and Australia’s S&P/ASX 200 slid 2.7 percent to 4,046.50. South Korea’s Kospi tumbled 3.4 percent to 1,782.46. Benchmarks in Singapore, Taiwan and New Zealand also fell.
Mainland Chinese shares lost ground, with the benchmark Shanghai Composite Index losing 1.4 percent to 2,344.52. The Shenzhen Composite Index fell 1.5 percent to 940.91. Shares in ports and trading related companies led the gains, while shares in banks, shipping and defense industry companies weakened.
“The investors are pessimistic over China’s economic outlook, on top of the problems in Europe. It is more like a panic selling,” said Guo Yanhong, an analyst at Huachuang Securities, based in Beijing.
In the U.S., meanwhile, the Federal Reserve Bank of Philadelphia said Thursday that its index of factory activity fell to minus 5.8 from 8.5 in April. Any reading below zero indicates contraction. Measures of new orders and employment also fell in May, the bank said. That suggests manufacturers in the region are cutting jobs.
Among individual stocks, Japanese vehicle makers were hit hard. Yamaha Motor Co. tumbled 5 percent and Mitsubishi Motors Corp. was down 5.1 percent. Toyota Motor Corp. lost 3.7 percent.
Asiana Airlines Inc., South Korea’s second-largest carrier, plunged 5.1 percent after reporting that its earnings slid in the first quarter of 2012 from a year earlier, mainly due to soaring fuel prices, Yonhap News Agency said.
Gold miners were among the gainers. Australia’s Newcrest Mining rose 3.8 percent on rising prices for the precious metal. Hong Kong-listed Zijin Mining Group Co., China’s largest gold miner, rose 3.4 percent.
Benchmark oil for June delivery was down 1 cent to $92.55 a barrel in electronic trading on the New York Mercantile Exchange. The contract fell 25 cents to settle at $92.56 in New York on Thursday.
In currencies, the euro fell to $1.2686 from $1.2714 late Thursday in New York. The dollar rose slightly to 79.30 yen from 79.28 yen.
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The CEO of JPMorgan Chase, which disclosed a $2 billion loss last week, said he was “dead wrong” when he dismissed concerns about the bank’s trading last month.
CEO Jamie Dimon said he did not know the extent of the problem when he said in April that the concerns were a “tempest in a teapot.” After the bank reported the trading loss, investors shaved almost 10 percent off the bank’s stock price.
“We made a terrible, egregious mistake,” Dimon said in an interview that aired Sunday on NBC’s “Meet the Press.” “There’s almost no excuse for it.”
The $2 billion loss came in the past six weeks. Dimon has said it came from trading in so-called credit derivatives and was designed to hedge against financial risk, not to make a profit for the bank.
Dimon said the bank is open to inquiries from regulators. He has also promised, in an email to the bank’s employees and in a conference call with stock analysts, to get to the bottom of what happened and learn from the mistake.
Dimon told NBC that he supported giving the government the authority to dismantle a failing big bank and wipe out shareholder equity. But he stressed that JPMorgan, the largest bank in the United States, is “very strong.”
Lawmakers and critics of the banking industry have seized on the $2 billion loss to say that banks still take too much risk more than three years after the financial crisis.
A piece of the financial regulation known as the Volcker rule would prevent banks from certain kinds of trading for their own profit. Dimon has said the trading involved in the $2 billion loss would not have fallen under the rule.
Rep. Barney Frank, D-Mass., told ABC’s “This Week” that he hopes the final version of the Volcker rule will prevent the type of trading that led to the massive loss at JPMorgan.
Addressing public anger toward Wall Street, Dimon said he wants a more equitable society and does not mind paying higher taxes. But he said attacking all of business is “very counterproductive.”
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U.K. consumer confidence dropped last month and may decline further after the economy slipped into a double-dip recession, according to Nationwide Building Society.
An index of sentiment fell to 44 from 53 in March, the Swindon, England-based customer-owned lender said in an e-mailed report today. A gauge of consumers
Oil prices inched lower toward $96 a barrel Thursday in Asia after U.S. crude supplies rose to a 22-year high, suggesting demand remains weak.
Benchmark oil for June delivery was up 16 cents to $96.65 a barrel at midday Singapore time in electronic trading on the New York Mercantile Exchange. The contract fell 20 cents to settle at $96.81 in New York on Wednesday.
Brent crude for June delivery was down 44 cents at $112.76 per barrel in London.
On Wednesday, the Energy Information Administration said that increased oil imports and weaker domestic demand for petroleum helped boost U.S. oil inventories last week to 379.5 million barrels, the highest since 1990.
China reported Thursday that its imports and exports in April grew less than analysts expected, sparking investor concern crude demand may be waning in the world’s second largest economy.
Crude has slumped $10, or about 10 percent, from $106 last week amid fears the global economy may grow less than expected this year business card. Political upheaval in France and Greece this week also renewed worries about Europe’s debt crisis and weak economy.
Some analysts expect oil prices to stabilize after the recent sell-off unless the global economy deteriorates significantly further.
“One could perhaps argue that with inventories building and global oil demand conditions softer in the first quarter, prices were on the high side to begin with,” Barclays said in a report. However, “the path of least resistance in prices is likely to be a slow grind higher from here in the coming months.”
In other energy trading, heating oil was down 1 cent at $2.99 per gallon and gasoline futures slid 0.8 cents to $3.02 per gallon. Natural gas added 0.5 cents at $2.47 per 1,000 cubic feet.
LMI Aerospace’s profit increased 11 percent in the first quarter as sales in both its engineering services and aerostructures business units grew.
The St. Charles-based aircraft parts manufacturer reported a $4.8 million profit, or 41 cents a share, for the first quarter that ended March 31, up from a $4.2 million profit, or 37 cents a share, a year ago short term personal loan.
LMI Aerospace’s sales grew to $66.7 million in the first quarter, up 9.6 percent from $60.9 million a year ago.
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Stocks are closing slightly higher as investors weigh news of higher corporate profit against disappointing economic news.
The Dow Jones industrial average rose 24 points to 13,228 at the close Friday. The Standard & Poor’s 500 edged up three points to 1,403. The Nasdaq composite rose 19 points to 3,069.
Amazon jumped 16 percent after the online retailer reported a big increase in shipments.
The government reported U.S. economy grew at annual rate of 2.2 percent, below the 2.5 percent expected.
European stock markets rose as investors shrugged off a second downgrade this year by S&P of Spain’s debt. Spain also reported its unemployment rate rose to nearly 25 percent, its highest in 18 years.
Spain’s IBEX rose 1.7 percent, France’s CAC-40 1.1 percent and Germany’s DAX 0.9 percent.
Signed contracts to buy U.S. homes rose more than forecast in March as low interest rates drew buyers back into the market.
The index of pending home purchases rose 4.1 percent to 101.4, the highest level since April 2010, after a 0.4 percent gain in February that was revised from a previously estimated 0.5 percent drop, the National Association of Realtors reported today in Washington. The median forecast of 43 economists surveyed by Bloomberg News called for a 1 percent rise in the measure, which tracks contracts on previously owned homes.
An improved labor market and mortgage rates near historic lows are helping to stabilize housing. At the same time, the industry remains the economy
India cut its benchmark interest rate more than forecast and highlighted inflation risks that limit the scope for following up on the first reduction in borrowing costs since 2009.
Governor Duvvuri Subbarao lowered the repurchase rate to 8 percent from 8.5 percent, the Reserve Bank of India said in a statement in Mumbai today. The outcome was predicted by three of 25 economists in a Bloomberg News survey. Seventeen expected a 0.25 percentage-point cut and the rest predicted no change.
India joins nations from Brazil to the Philippines in lowering borrowing costs to support domestic demand as political gridlock deters investment and Europe’s debt crisis and easing Chinese expansion dim global prospects. Inflation has slowed to 6.89 percent while remaining the fastest among the biggest emerging economies. The central bank said today price pressures contribute to limiting the room for further rate cuts.
“The RBI is in an unenviable position, but needs to shift focus to supporting growth,” Rohini Malkani, an economist at Citigroup Inc. in Mumbai, said before the decision. Higher oil prices, the fiscal deficit and the rupee’s decline continue to pose the risk of faster price increases, Malkani said.
“The reduction in the repo rate is based on an assessment of growth having slowed below its post-crisis trend rate which, in turn, is contributing to a moderation in core inflation,” the Reserve Bank said. “However, it must be emphasized that the deviation of growth from its trend is modest. At the same time, upside risks to inflation persist. These considerations inherently limit the space for further reduction in policy rates.”
Growth Outlook
Gross domestic product may expand 7.3 percent in the year through March 2013, compared with the baseline projection of 7 percent for the previous 12 months, the central bank estimated today. Inflation will probably be at 6.5 percent by the end of the current financial year, it said.
Uncertainty about global commodity prices, particularly crude oil, India’s fiscal shortfall, a “very high” current- account deficit and food inflation are among risks to the outlook, the Reserve Bank said.
Growth has been hurt by declining investment and moderating consumer spending after the Reserve Bank raised rates by a record 3.75 percentage points from March 2010 to October last year to fight inflation.
Subbarao has already eased monetary conditions by reducing the amount of deposits lenders must set aside as reserves twice this year, by a combined 125 basis points, to 4.75 percent to ease cash shortages in the banking system. He left the cash reserve ratio unchanged today. Liquidity is “steadily moving towards” its comfort zone, the RBI said cheap business cards.
Diminished Trend Rate
Recent patterns of inflation and expansion signal India’s trend rate of economic growth has declined from its peak before the financial crisis, the Reserve Bank said. Significant supply bottlenecks in infrastructure, energy, minerals and labor are among the main reasons why, it said.
March’s climb in the benchmark wholesale-price index exceeded the median 6.65 percent estimate in a Bloomberg News survey of 33 economists, data showed yesterday. While Indian inflation has eased from more than 9 percent in most of 2011, it remains the fastest in the so-called BRIC group of largest emerging economies that also includes Brazil, Russia and China.
Monetary policy will continue to aim to “condition and contain perception of inflation” in the range of 4 percent to 4.5 percent, the monetary authority said.
“The RBI is faced with a very difficult situation as growth is slowing and inflation remains high,” said Rupa Rege Nitsure, an economist at state-owned Bank of Baroda in Mumbai. India needs “efforts from the government’s side to boost the capacity of the economy by accelerating reforms,” Nitsure said.
Petroleum Prices
Higher raw material costs and the rupee’s decline are leading companies including steel makers to raise prices. Steel Authority of India Ltd., the nation’s second-largest producer, increased tariffs in April for the fourth time in three months.
Prime Minister Manmohan Singh’s government, grappling with fiscal and trade gaps and depressed industrial output, faces one of the most challenging periods since taking office in 2004.
In the budget on March 16, the administration announced record borrowing needs to plug a fiscal shortfall estimated at 5.1 percent of gross domestic product in 2012-2013. The current- account deficit reached $19.6 billion in the three months through December, the worst quarterly performance on record.
“From the perspective of vulnerabilities emerging from the fiscal and current account deficits, it is imperative for macroeconomic stability that administered prices of petroleum products are increased to reflect their true cost of production,” the Reserve Bank said.
A current-account gap at 4.3 percent of gross domestic product in the fourth quarter of 2011 is unsustainable, it said.
Policy reversals have further hindered Singh’s economic agenda, including the suspension of plans in December to open India’s retail industry to foreign companies.
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