Reply #11: Stocks Fall as Euro Hits Four-Year Low on German Ban [View All]

The MSCI Asia Pacific Index lost 1.2 percent to 115.12 at 8 a.m. in London. The Stoxx Europe 600 decreased 1.1 percent to 248.55. Standard & Poor’s 500 futures fell 0.5 percent following a 1.4 percent decline in the index yesterday. The euro was little changed against the dollar after weakening below $1.22 for the first time since April, 2006. Yields on 10-year U.S. notes slid 2 basis points to 3.33 percent while 10-year bund yields fell 7 basis points to 2.75 percent. Oil slumped to a seven-month low near $68 a barrel and copper dropped 1.9 percent.

German Chancellor Angela Merkel’s government rattled investors with the new regulations by raising concerns they won’t be able to hedge their European holdings or sell assets as the region’s debt crisis worsens. The BaFin markets regulator banned investors from naked short sales -- speculating on declines in companies they don’t own -- for 10 banks and insurers, as well as naked credit-default swaps on euro-area government bonds starting today.

The rules hurt demand for European assets. The euro, which has depreciated 15 percent against the dollar this year, weakened to as low as $1.2144 before recovering at $1.2205. The pound slumped to a 13-month low of $1.4278 and the yen gained against 15 of 16 major counterparts. The German ban will last until March 31, 2011, BaFin said yesterday in an e-mailed statement.

The MSCI Asia Pacific Index has declined 11 percent from its high for the year on April 15, entering a so-called correction, as Europe’s debt crisis and concern China will quell inflation eroded investor confidence. Almost five shares fell in the index for each that rose.

Japan’s Nikkei 225 Stock Average dropped 0.5 percent. South Korea’s Kospi Index slumped 0.8 percent and Australia’s S&P/ASX 200 Index declined 1.7 percent. Hong Kong’s Hang Seng Index retreated 1.5 percent.

http://preview.bloomberg.com/news/2010-05-19/stocks-commodities-fall-as-euro-hits-four-year-low-on-german-trading-ban.html

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The ban on naked short sales will put pressure on the U.S. (Senate, Fed, SEC) to do the same. For this move, I am very grateful that Europe has articulated the evils of naked short sales. Short sales are useful as Ritholtz explained yesterday. But the naked short sales are equivalent to what ones does in las Vegas at the roulette wheel and have no legitimate role in the worlds of banking and finance.