Stocks declined in Europe and Asia and oil retreated for the first time in six days as banking chiefs from China to the US warned that asset prices are high given the outlook for the economy.
The MSCI World Index of 23 developed nations slipped 0.1 per cent at 12:20 pm in London after a five-day, 5.2 per cent rally. Futures on the Standard & Poor’s 500 Index added 0.2 per cent. Oil slid as much as 1.3 per cent from a 10-month high in New York, while copper sank for the first time in four days on the London Metal Exchange. The yen strengthened against all 16 of the most-traded currencies tracked by Bloomberg.
China Construction Bank Chairman Guo Shuqing said Tuesday that excess cash has led to asset bubbles after the nation’s banks handed out a record $1.1 trillion of new loans in the first half. SunTrust Banks Chief Executive Officer James Wells said Tuesday his industry “is a long way from declaring any sort of victory.” US economic reports may show Tuesday that the housing slump is moderating and consumer confidence is improving.
“Very short-term, the market appears to be a little overheated,” Marc-Alexander Kniess, a senior portfolio manager at DWS Investment GmbH in Frankfurt who oversees $1.2 billion, said in a Bloomberg television interview. “If you look at investor sentiment, there are too many bulls running around these days.”
Raw-material producers led the decline in European shares, losing 1.6 per cent as a group. The Dow Jones Stoxx 600 Index slid 0.2 per cent as three stocks fell for every two that rose.
BHP, Rio Tinto
BHP Billiton, the world’s largest mining company, fell 1.7 per cent in London, snapping a five-day advance that left it valued at 24.8 times earnings, near the most expensive level since April 2004, according to data compiled by Bloomberg. Rio Tinto Group, the third-biggest mining company, slid 2.1 per cent.
JPMorgan Chase & Co strategists advised trimming holdings in European mining stocks to add to shares of phone companies, saying prices for raw-material producers were no longer “as attractive” after their rally. A gauge of telecommunications stocks added 1.2 per cent for the biggest gain among 19 industry groups in the Stoxx 600.
US commodity companies, the most expensive stocks in the S&P 500, are still turning into relative bargains.
While investors paid an average 33.1 times earnings this year for copper, plastic and seed producers last week, the premium fell to 17.7 based on 2010 analyst estimates that call for profits to almost double, data compiled by Bloomberg show. The decline in the price-earnings ratio is the steepest for any group in the S&P 500 and would leave the companies 23 per cent less expensive than their historical average of 23.2 times.
US Futures
US stock-index futures climbed after the S&P 500 fell for the first time in five days Monday. Reports Tuesday may show home values in 20 US metropolitan areas probably decreased at a slower pace and consumer confidence climbed as the global recession eased.
The S&P/Case-Shiller home-price index fell 16.4 per cent in June from a year earlier, the smallest drop in almost a year, according to the median forecast of 31 economists surveyed by Bloomberg News. A report from the Conference Board may show confidence rose in August for the first time in three months.
The first simultaneous recessions in the US, Europe and Japan since World War II had sent the MSCI World Index down as much as 59 per cent from an October 2007 record through March 9, 2009, as the collapse of subprime mortgages froze credit markets and spurred $1.6 trillion in losses and writedowns at financial firms. The global stocks gauge is still down 35 per cent from its all-time high.
The Organization for Economic Cooperation and Development said last week the economies of its 30 members collectively stopped shrinking in the second quarter as Japan, France and Germany exited recessions.
