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 1.3 percent to 880.41 as of 9:43 a.m. in London after senators voted down a bill to provide $14 billion of emergency funds for General Motors Corp. and Chrysler LLC. GM plunged 28 percent in Germany, while Honda Motor Co. and Daimler AG sank more than 6 percent. The dollar fell to a 13-year low against the yen, while the cost of protecting corporate bonds against default soared. Metals and crude oil slumped.
“The markets are still guided by fear,” said Robert Drijkoningen, The Hague-based head of the multi-asset group at ING Investment Management, which has $488 billion under management. “The markets are in a very dire situation and are in a very risk- averse situation. The short-term is bleak,” he said on Bloomberg Television.
Standard & Poor’s 500 Index futures sank 3.9 percent, indicating the benchmark for U.S. equities will extend yesterday’s 2.9 percent drop. Europe’s Dow Jones Stoxx 600 Index lost 3.3 percent, while the MSCI Asia Pacific Index fell 3.9 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.”
‘Betrayed Again’
The MSCI Emerging Markets Index lost 3.2 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 lost 45 percent this year, its worst annual retreat on record, as writedowns and credit losses neared $1 trillion amid the worsening financial crisis. 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 28 percent to $2.98, while Ford Motor Co. lost 9.3 percent to $2.63. Daimler sank 6.5 percent to 23.49 euros and Bayerische Motoren Werke AG fell 4.4 percent to 21.46 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.
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, dropped 9.3 percent to 42,000 won.
“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.
Dollar, Platinum
The U.S. dollar weakened to 88.53 against the yen, the lowest since Aug. 2, 1995, before trading at 89.65 in London. Credit- default swaps, contracts conceived to protect bondholders against default, on the Markit iTraxx Europe index of 125 companies with investment-grade ratings increased 12.5 basis points to 212, according to JPMorgan Chase & Co. prices in London. That’s up from about 50 basis points at the start of the year.
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 5.9 percent, trimming yesterday’s 10 percent rally.
Yields on 10-year Treasury notes fell 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.”
‘Lose Your Job’
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.
“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. Retail sales rose 20.8 percent in November, the slowest pace in nine months, the National Bureau of Statistics also said today. China Mobile, the world’s biggest phone company by value, lost 4.7 percent to HK$78.50.
To contact the reporters for this story: Chen Shiyin in Singapore at schen37@bloomberg.net; Adam Haigh in London at ahaigh1@bloomberg.net.
Last Updated: December 12, 2008 04:46 EST
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