Global equities drop on inflation fears

Equities markets in the Asia-Pacific region were lower on Monday on fears that growing inflation in the United States will cause the Federal Reserve to hold back on further interest rate cuts at a time when the economy is continuing to slow. The Shanghai Composite was down 2.62 percent to 4,876.76 while South Korea’s Kospi index fell 2.91 percent to 1,839.82. The Straits Times index was 3.25 percent lower to 3,353.56 in Singapore. Indices in Australia lost over 200 points each, with the Sydney Ordinaries dropping 3.42 percent to 6,331.8 and the S&P/ASX200 down 3.52 percent to 6,263.5. Hong Kong’s Hang Seng index dropped nearly 1,000 points for a 3.51 percent decline to 26,596.58. In Taiwan, the Taiex was 3.54 percent lower to 7,830.85, a loss of almost 300 points while India’s Sensex fell nearly 800 points, or 3.84 percent, to 19,261.35.

Markets in Tokyo were also lower when Nomura Holdings said that several Japanese banks were being expected to make too high a contribution to a fund meant to buy assets at structured investment vehicles so that they don’t have to be sold at too low a price to raise cash. The Japanese banks have been asked to contribute 30 percent of the total to the fund, which is being organized by US banks. The Nikkei 225 was down 1.71 percent to 15,249.79 and the Topix index dropped 1.9 percent to 1,472.7 while the Mothers market plummeted 6 percent to 784.12. Sumitomo Mitsui (TYO: 8316) was down 3.7 percent to ¥825,000 while Mitsubishi UFJ (TYO: 8306; NYSE: MTU) was 4.3 percent lower to ¥1,028 and Mizuho (TYO: 8411; NYSE: MFG) fell 5 percent to ¥533,000. The steel sector suffered on worries that China will take steps to slow the growth of its economy. Nippon Steel (TYO: 5401) dropped 3.7 percent to ¥605 and JFE Holdings was down 4.6 percent to ¥5,180. The pharmaceuticals sector was also lower after a report that Japan’s Health Ministry is going to cut the amount it pays for drugs by over 1 percent. Daiichi Sankyo (TYO: 4568) was 1.4 percent lower to ¥3,480 while Takeda (TYO: 4503) and Astellas Pharma (TYO: 4503) each dropped 1.8 percent to ¥6,610 and ¥4,890 respectively.

European markets were also lower. The FTSE Eurofirst 300 was down 1.52 percent to 1,493.32. The Paris CAC-40 was 1.61 percent lower to 5,514.88 while the Dax lost over 120 points, or 1.55 percent, to 7,825.44 and Madrid’s IBEX fell over 1.65 percent, more than 250 points, to 15,318.5. The best performance on the day on the CAC-40 came from drinks group Pernod-Ricard (Euronext: RI), which added 2.29 percent to €153.78 on reports that it is close to buying vodka brand Stolichnaya. Utility RWE (FWB: RWE) had the best day on the Dax, where it gained 0.44 percent to €95.81. The worst performance on the day on the CAC-40 came from the telecommunications sector, where Alcatel-Lucent (Euronext: ALU; NYSE: ALU; TYO: 6687) fell 5.15 percent to €5.16 after UBS cut its target share price. Infineon (FWB: IFX; NYSE: IFX) had the worst day on the Dax with a decline of 5.03 percent to €8.15. Banks were lower. Dexia (Euronext: DEXB) was down 3.01 percent to €16.77 while Commerzbank (FWB: CBK) fell 2.73 percent to €26.01.

London’s markets saw declines as the FTSE 100 fell 1.86 percent to 6,277.8 and the FTSE 250 dropped 2.62 percent, almost 275 points) to 10,140.4. The tobacco sector had a good day on the 100. British American Tobacco (LSE: BATS; AMEX; BTI; KLSE: BAT) was up 1.31 percent to £19.27 while Imperial Tobacco Group (LSE: IMT) had the best day on the 100 with a gain of 1.63 percent to £26.19. Over on the 250, builder John Wood Group (LSE: WG) gained 5.17 percent to 427.25p for the best performance on the 250. Home builders and the property development and investment sector saw declines. Taylor Wimpey (LSE: TW) was down 3.8 percent to 199.1p and Barratt Developments (LSE: BDEV) was 4.8 percent lower to 449.75p while St Modwen Properties (LSE: SMP) fell 9.52 percent to 378p and Minerva (LSE: MNR) dropped 9.78 percent to 115.25p. Other losers on the day included British Airways (LSE: BAY; NYSE: BAB), which was down 5.54 percent to 302.5p. Tullow Oil (LSE: TLW; OTC: TUWLY) was 5.27 percent lower to 646.5p.

Wall Street was lower in mid-afternoon trade on continued skepticism over the Federal Reserve’s plan to rescue the credit markets and after a weekend speech from former Fed chairman Alan Greenspan, who said that there is a growing threat of stagflation, a gain in inflation as the economy slows, for the US economy. Even President George W. Bush admitted in a speech that the subprime mortgage and wider credit market problems are causing concern. In afternoon trade the Dow Jones Industrial Average was down 1.02 percent to 13,203.61 while the Nasdaq Composite was 1.72 percent lower to 2,590.47 and the S&P 500 had dropped 1.09 percent to 1,451.93. In the manufacturing sector Ingersoll-Rand (NYSE: IR) dropped $4.12 to $45.06 after it said it would purchase air conditioner manufacturer Trane (NYSE: TT), which added $8.53 to $45.73. Internet retailer Amazon (NAS: AMZN) was down $3.07 to $86.01 despite an increase in its target share price by one broker.