In Europe, the FTSE 100 index of leading British shares was
down 28.36 points, or 0.5 percent, at 5,846.83 while Germany’s DAX fell 31.76
points, or 0.5 percent, at 6,756.05. The CAC-40 in France was 27.23 points, or
0.7 percent, lower at 3,918.48.
Wall Street was poised to drop modestly again at the open
later — Dow futures were down 4 points at 11,309 while the broader Standard and
amp; Poor’s 500 futures fell less than a point to 1,210.60.
China was the epicenter of news flow Wednesday, a day before
the leaders of the Group of 20 industrial and developing countries gather in
South Korea’s capital Seoul.
The artificially low level of China’s currency, the yuan, is
likely to be one of the main topics of discussion during the two-day meeting.
Investors are concerned that the decision by the People’s
Bank of China to raise the reserve ratio requirements of banks by half a
percentage point — to cool lending, particularly in the overheated real estate
market — from next Monday will be the first in a series of tightening measures.
A day ahead of inflation figures and the G-20 meeting, there
are growing concerns in the markets that China is preparing to tighten policy
further to dampen down on price pressures and rein in sky-high growth levels.
“The timing may well be an indication of plans for more
substantial tightening in an attempt to slow economic growth,” said Derek
Halpenny, an analyst at the Bank of Tokyo-Mitsubishi UFJ.
China’s Shanghai Composite Index fell 0.6 percent to
3,115.36.
Further jitters were stoked by the news that the country’s
credit rating agency Dagong downgraded the long-term sovereign rating of the US
to A-plus from AA. That was the second time in six months that Dagong has
downgraded its rating on the US and comes after China’s central bank chief Zhou
Xiaochuan said the Fed’s new money-boosting measures may hurt the rest of the
world.
As well as dishing out criticisms, China will see likely a
fair chunk thrown its way too at the G20 meeting.
In particular, the country’s monetary authorities will
likely face criticism, most notably from President Barack Obama, that its
policy of keeping the yuan low to boost exports is causing problems in the
world economy. Ahead of the meeting, the Chinese monetary authorities have
allowed the yuan to rise modestly against the dollar in Wednesday’s daily
fixing.
Figures earlier showed how much China’s exporters are
gaining from the artificially low currency, as the country posted its
second-highest trade surplus this year in October — the $27.1 billion surplus
was up sharply over September’s $16.9 billion and just behind the year’s high
in July of $28.7 billion.
“Ahead of tomorrow’s G20 summit, China’s trade surplus will
continue to keep the focus on the controversial subject of trade imbalances and
reform of the international monetary system,” said Neil MacKinnon, global macro
strategist at VTB Capital. “There is no doubt that currency tensions arising
from the weakness in the dollar will be high on the agenda.” Even without the
developments in China, many analysts said the lackluster performance this week
was inevitable as stocks have enjoyed big gains in recent weeks on expectations
that the Federal Reserve would be pumping more money into the US economy. Its
decision last week to buy up $600 billion of assets sent many of the world’s
major stock indexes up to their highest levels since September 2008, when US
investment bank Lehman Brothers collapsed and set in motion a chain of events
that led to the deepest and longest global economic recession since World War II.
“It does now seem as if a spate of profit taking could now
be on the cards, not least given the relatively uneventful economic calendar that
we have in the coming days ahead of the expected news from the G20 meeting,”
said Chris Weston, research analyst at IG Markets.
The other main focus in the markets ahead of the G20 meeting
is the resurfacing of Europe’s government debt crisis in Ireland - the country’s
borrowing costs are rising in the markets on a daily basis amid fears that the
government will not be able to push through its next round of austerity
measures and will be forced to seek help from its partners in the euro zone.
The euro was down 0.1 percent on the day at $1.3759, way
down on last Friday’s multi-month high of $1.4257.
Earlier in Asia, Japan’s benchmark Nikkei 225 stock average
was the best performer in Asia, closing up 136.03, or 1.4 percent, at 9,830.52
as the dollar rose to near 82 yen, giving exporters some respite from a strong
Japanese currency. By mid morning London time, the dollar was 0.2 percent
higher on the day at 81.88 yen.
South Korea’s Kospi added 1.1 percent to 1,967.85 and
Australia’s S and amp;P/ASX 200 fell 0.9 percent to 4,699.80.
Benchmark oil for December delivery was up 6 cents at $86.78
a barrel in electronic trading on the New York Mercantile Exchange.
