Europe Stocks Drop as Emerging-Market Losses Spread; Gold Rises

Frankfurt (Aug 19)  The selloff in emerging markets spread to Europe, sending stocks lower for the first time this week. U.S. equity-index futures retreated and gold rose.

Exporters led declines as a slowdown in China and weakening currencies in developing economies threatened earnings, while the outlook for the Federal Reserve’s first interest-rate increase since 2006 hurt demand for riskier assets. Vietnam and Kazakhstan devalued their currencies as the fallout continued from China’s decision last week to allow the yuan to depreciate.

The Stoxx Europe 600 Index lost 0.8 percent by 7:32 a.m. in New York and emerging-market shares extended declines to a four-year low. Standard & Poor’s 500 Index futures slid 0.2 percent. Gold gained for a third day, climbing 0.4 percent to $1,121.98 an ounce. The yield on 10-year Treasury notes was little changed at 2.19 percent.

“Investors are nervous about the global picture,” said Heinz-Gerd Sonnenschein, a strategist at Deutsche Postbank AG, in Bonn, Germany. “Declines in Asian and emerging-market stocks adds to negative sentiment, while economic signals have been mixed and there’s the big question mark on what comes out from the Fed minutes.”

While the release of minutes of the Fed’s last meeting in July and a report on consumer prices will provide information about rate considerations and inflation, the policy meeting and data precede China’s surprise devaluation on Aug. 11 that prompted some investors to scale back bets on a rate increase in September.

Emerging Markets

The MSCI Emerging Markets Index lost 0.4 percent, its fourth day of losses. Global funds are poised to be net sellers in developing Asian equities tracked by Bloomberg for a third straight month, the longest run since the middle of 2012.

Malaysia’s ringgit and Taiwan’s dollar led declines in currencies while exchange rates for commodity producers including Russia and South Africa rebounded.

Kazakhstan allowed the tenge to weaken the most since a devaluation 18 months ago, signaling Central Asia’s biggest crude producer wants to adjust to declines in the currencies of China and Russia, its top trading partners. The currency dropped 4.4 percent to 197 per dollar.

Vietnam devalued the dong for the third time this year, with the central bank weakening its reference rate by 1 percent. It also increased the scope for fluctuations to 3 percent on either side, after doubling the range on Aug. 12.

The Shanghai Composite Index erased a drop of as much as 5.1 percent to close 1.2 percent higher. The gauge earlier broke below its 200-day moving average, a level that has prompted rebounds on two occasions since the start of July. Hong Kong’s Hang Seng China Enterprises Index dropped 1.2 percent.

Cutting Forecast

Carlsberg A/S tumbled 10 percent in Europe after the world’s fourth-biggest brewer cut its full-year profit forecast after reporting quarterly earnings that misses analysts’ estimates. Sydbank A/S lost 5 percent after posting net income that fell short of projections. Glencore Plc slid 3.8 percent as the miner reported a slump in profit.

Raiffeisen Bank International AG jumped 7.9 percent as the second-biggest lender in eastern Europe said net income increased, beating projections. Admiral Group Plc advanced 2.7 percent after the U.K. car insurer reported an increase in first-half profit and increased its dividend..

The euro strengthened 0.1 percent to $1.1037, snapping a four-day losing streak and the yen was little changed. Asian and commodity-linked currencies have borne the brunt of declines since the yuan was ratcheted lower.

Source: Bloomberg