European stocks dropped while gold and the yen rallied as new sanctions sent Russia’s ruble and bonds plunging amid efforts to curb violence in Ukraine. Chinese shares fell as new offerings locked up funds and a potential onshore-bond default loomed.

The Stoxx Europe 600 Index lost 0.6 percent by 8:14 a.m. in London as Moscow’s Micex (INDEXCF) Index slid 1.8 percent. Standard & Poor’s 500 Index futures slipped 0.3 percent. The yield on Russia’s 2027 bonds surged 28 basis points and the ruble slumped 1.5 percent. The yen added 0.2 percent versus the dollar. Gold climbed above $1,300 and ounce and palladium for immediate delivery traded at the highest since February 2001. The Shanghai Composite Index slid 0.6 percent.

The Obama administration and the European Union imposed sanctions on Russian banks, energy companies and defense firms in the latest attempt to pressure the country to stop meddling in Ukraine. U.S. equities’ record-breaking gains are sowing anxiety among financial professionals, with a Bloomberg poll showing three in five believe the market is heading for a bubble or already in one. China faces what would be its second onshore bond default after a builder said it may miss a payment.

“It’s time to start to reduce equities,” said Yoshiyuki Suzuki, the head of fixed income in Tokyo at Fukoku Mutual Life Insurance Co., which has the equivalent of $59.2 billion in assets. “Every investor is starting to have a fear of the stock market and is starting to shift money to fixed income.”

S&P 500 futures dropped today after the index climbed 0.4 percent in New York to 1,981.57, near the all-time closing high of 1,985.44 reached July 3. The Dow Jones Industrial Average closed at a record 17,138.2. Ten-year Treasury yields slipped one basis point to 2.51 percent after falling two basis points, or 0.02 percentage point, in the U.S.

Yen Gains

Just two of 19 groups on the Stoxx 600 advanced today. The guage yesterday jumped 1.3 percent. The gauge was 4.4 percent higher for the year through yesterday.

The yen traded at 101.45 to the dollar while the yield on 10-year Japanese government bonds fell one basis point to 0.537 percent, and briefly touched a one-year low of 0.535 percent. The euro was little changed at $1.3525 and 0.2 percent weaker at 137.3 yen.

The ruble slumped to 34.8850 per dollar and weakened 1.4 percent to 47.1898 a euro. The Micex Index dropped to 1,448.20 in Moscow, the lowest level since June 2. OAO Rosneft, Russia’s biggest oil company, tumbled 4.3 percent after being named among companies targeted in the new round of U.S.-EU sanctions.

Economic Squeeze

President Barack Obama slapped more sanctions on Russian companies in the U.S.’s latest salvo in the international confrontation over Russia’s actions in neighboring Ukraine. Rosneft, OAO Gazprombank and natural gas producer OAO Novatek were among those hit with sanctions aimed at squeezing the $2 trillion economy of Russia, the world’s biggest energy exporter.

The new sanctions may tip Russia into a recession, said David Riedel of Riedel Research Group Inc.

“The country is teetering on the edge now and this will be enough to push it over,” Riedel, president and founder of the New York-based firm, said by e-mail yesterday. “The Russian market will go down but not as much as at the depths of the Crimea crisis. The Crimea situation took markets by surprise, this time it is less of a surprise.”

Precious Metals

Gold bullion for immediate delivery rose as much as 0.7 percent to $1,308.31 an ounce. The metal fell to $1,292.26 on July 15, the lowest level since June 19 as investors assessed prospects for higher U.S. interest rates.

Palladium added as much as 0.8 percent to $880.58 an ounce. Russia is the world’s biggest producer of the metal used in pollution-control devices for cars, while strikes in South Africa, another major supplier, have cut shipments amid rising auto demand.

Hong Kong’s Hang Seng Index dropped 0.2 percent and a gauge of Chinese companies in the city slid 0.5 percent. Mainland equity gauges fell, with all groups on the Shanghai Composite Index retreating. Huatong Road & Bridge Group Co. warned it may miss a payment on 400 million yuan of one-year bonds as its chairman assists authorities with an investigation.

Shanghai Beite Technology Co., an auto-parts maker that will start trading in Shanghai tomorrow, and 11 more companies to start marketing their shares next week may freeze subscription funds of as much as 766.5 billion yuan ($124 billion), according to the Securities Daily.

Six of the 10 industry groups on the MSCI Asia Pacific Index declined today, with information-technology companies and utilities registering the biggest declines.

TSMC Tumbles

Taiwan Semiconductor Manufacturing Co. slumped 4.6 percent, the most in a year, after the world’s largest custom chipmaker said it will trail a rival in production of advanced chips. Taiwan’s benchmark stock gauge tumbled 1.1 percent.

South Korea’s 10-year bonds rose by the most in two weeks and stocks extended a rally after newly appointed Finance Minister Choi Kyung Hwan flagged a possible interest-rate cut.

The yield on the 2.75 percent sovereign bonds due June 2017 fell seven points to 2.52 percent as of 12:05 p.m. in Seoul, the biggest drop since July 2, Korea Exchange Inc. prices show. The Kospi index of shares rose 0.4 percent, taking gains this week to 1.6 percent and the highest close this year.

Forty-seven percent of respondents to the Bloomberg Global Poll said the equity market is close to unsustainable levels while 14 percent already saw a bubble, the quarterly survey of of 562 investors, analysts and traders who are Bloomberg subscribers. Almost a third of respondents called the market for lower-rated corporate debt overheated and most said stock swings will increase within six months, the July 15-16 poll showed.

Federal Reserve Chair Janet Yellen said yesterday asset valuations aren’t out of line with historical norms, after saying a day earlier that prices for some stocks were stretched.

 

Source: bloomberg

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