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Tokyo - Shares and commodities fell again on Tuesday as investors sought refuge from the political turmoil fuelling fears of Greece's exit from the euro and threatening to undo progress made so far to solve Europe's debt crisis.
The euro slipped to a four-month low of $1.2815 and the risk-sensitive Australian dollar hit a five-month low of Aus$0.9945.
The US dollar and the yen, perceived as safe haven currencies for their relative stability, stayed well bid, with the dollar index measured against major currencies scaling a four-month peak of 80.739.
MSCI's broadest index of Asia-Pacific shares outside Japan retreated as much as 1.1% to a four-month low, then regained some ground to be off 0.8%.
Materials were the worst performer, at one point plunging 2%, tracking the slide in a benchmark index for resource markets which hit a 19-month low on Monday.
Chinese growth deceleration
Weak commodities dragged down resource-reliant Australian shares while exporters with high exposure to Europe sent Japan's Nikkei average plummeting 1.3%.
"The issue of Greece potentially leaving the eurozone has probably been in the minds of many, but a strengthening sense of a Chinese growth deceleration has given a new dimension to the latest risk aversion, and both factors are hitting commodities across the asset classes," said Tomomichi Akuta, senior energy researcher at Mitsubishi UFJ Research and Consulting in Tokyo.
"Doubts are growing about the sustainability of Europe's fiscal and monetary policies aimed at stabilising the region, and risk appetite will remain guarded until a solution is found to accommodate both Greek public sentiment and Europe's desire to safeguard its unity," he said.
The US benchmark Standard & Poor's 500 Index on Monday fell below a key support line at 1 340, while the KBW Bank Index slid 2.6%, pressured by JPMorgan Chase & Co which announced the exit of a top executive after suffering trading losses that could reach $3bn or more.
Greece without government
Greek President Karolos Papoulias' attempt to form a government has deadlocked. Opponents of austerity steps needed in exchange for an international bailout expressed little hope for a compromise, pushing the country towards a new vote which anti-bailout leftists are likely to win.
European leaders say that unless Greece fulfils its bailout commitments, they will cut off funding, which could oust Athens from the euro.
That would threaten to put in disarray restructuring efforts by other highly-indebted eurozone economies which agreed to harsh fiscal reforms in return for rescue funds.
"We would argue that the issue regarding a Greek exit for the euro is not 'if' but 'when and how'. For now, policymakers are still trying to avoid... the inevitable," said Karen Guinand, a member of the investment strategy team at private bank Lombard Odier.
"An 'orderly' exit would be the best outcome, but this will obviously be difficult to orchestrate, given the risks of contagion to other periphery countries," she said.
A strict adherence to German-led austerity policies may now have to be amended, but a pull-back in fiscal consolidation efforts will only aggravate the eurozone's debt problems.
"Ultimately, we continue to believe that debt restructuring, combined with massive bank recapitalisation, is the only feasible outcome to this crisis," Guinand said.
After a surprise drop in the eurozone's industrial output in March, data due on Tuesday will likely show the region fell into its second recession in just three years in early 2012, as the debt crisis risks throwing southern Europe into a downward spiral and widening divergence from Germany.
Worries about China's economic growth slowing more rapidly than previously thought will likely prompt additional policy actions, which over time, will prove favourable for markets, said Morgan Stanley in a research note.
"This, with the recent decline in oil prices, may give markets comfort in anticipating more (front-loaded) policy easing by EM (emerging markets) central banks - another eventual positive for risk," it said.
Flight to safe haven
Riskier assets gave way to safe haven US and German debt on Monday, pulling the benchmark 10-year Treasury yields below a key resistance level of 1.8% and German 10-year yields down to a record low 1.434%.
Spanish and Italian bond yields and default insurance costs surged on Monday on investor fears over Greece and Spain's ailing banks.
Broad risk aversion pressured Asian credit markets, widening the spread on the iTraxx Asia ex-Japan investment-grade index by 7 basis points, but Japanese government bonds rallied to their highest since late 2010.
Flight from riskier assets, together with a firmer dollar, sent the Thomson Reuters-Jefferies CRB index down 1.2% to settle below 290 points on Monday. The index has shed nearly 6% on the year after a downtrend that began with the slide in oil prices over the past few weeks.
Spot gold touched a four-and-a-half month low of $1 552.49 an ounce on Tuesday, as investors dumped bullion for cash.
US crude eased 0.4% to $94.42 a barrel, after falling more than a dollar the previous session while Brent crude fell 0.3% to $111.25, off Monday's near four-month low of $110.04.
The euro slipped to a four-month low of $1.2815 and the risk-sensitive Australian dollar hit a five-month low of Aus$0.9945.
The US dollar and the yen, perceived as safe haven currencies for their relative stability, stayed well bid, with the dollar index measured against major currencies scaling a four-month peak of 80.739.
MSCI's broadest index of Asia-Pacific shares outside Japan retreated as much as 1.1% to a four-month low, then regained some ground to be off 0.8%.
Materials were the worst performer, at one point plunging 2%, tracking the slide in a benchmark index for resource markets which hit a 19-month low on Monday.
Chinese growth deceleration
Weak commodities dragged down resource-reliant Australian shares while exporters with high exposure to Europe sent Japan's Nikkei average plummeting 1.3%.
"The issue of Greece potentially leaving the eurozone has probably been in the minds of many, but a strengthening sense of a Chinese growth deceleration has given a new dimension to the latest risk aversion, and both factors are hitting commodities across the asset classes," said Tomomichi Akuta, senior energy researcher at Mitsubishi UFJ Research and Consulting in Tokyo.
"Doubts are growing about the sustainability of Europe's fiscal and monetary policies aimed at stabilising the region, and risk appetite will remain guarded until a solution is found to accommodate both Greek public sentiment and Europe's desire to safeguard its unity," he said.
The US benchmark Standard & Poor's 500 Index on Monday fell below a key support line at 1 340, while the KBW Bank Index slid 2.6%, pressured by JPMorgan Chase & Co which announced the exit of a top executive after suffering trading losses that could reach $3bn or more.
Greece without government
Greek President Karolos Papoulias' attempt to form a government has deadlocked. Opponents of austerity steps needed in exchange for an international bailout expressed little hope for a compromise, pushing the country towards a new vote which anti-bailout leftists are likely to win.
European leaders say that unless Greece fulfils its bailout commitments, they will cut off funding, which could oust Athens from the euro.
That would threaten to put in disarray restructuring efforts by other highly-indebted eurozone economies which agreed to harsh fiscal reforms in return for rescue funds.
"We would argue that the issue regarding a Greek exit for the euro is not 'if' but 'when and how'. For now, policymakers are still trying to avoid... the inevitable," said Karen Guinand, a member of the investment strategy team at private bank Lombard Odier.
"An 'orderly' exit would be the best outcome, but this will obviously be difficult to orchestrate, given the risks of contagion to other periphery countries," she said.
A strict adherence to German-led austerity policies may now have to be amended, but a pull-back in fiscal consolidation efforts will only aggravate the eurozone's debt problems.
"Ultimately, we continue to believe that debt restructuring, combined with massive bank recapitalisation, is the only feasible outcome to this crisis," Guinand said.
After a surprise drop in the eurozone's industrial output in March, data due on Tuesday will likely show the region fell into its second recession in just three years in early 2012, as the debt crisis risks throwing southern Europe into a downward spiral and widening divergence from Germany.
Worries about China's economic growth slowing more rapidly than previously thought will likely prompt additional policy actions, which over time, will prove favourable for markets, said Morgan Stanley in a research note.
"This, with the recent decline in oil prices, may give markets comfort in anticipating more (front-loaded) policy easing by EM (emerging markets) central banks - another eventual positive for risk," it said.
Flight to safe haven
Riskier assets gave way to safe haven US and German debt on Monday, pulling the benchmark 10-year Treasury yields below a key resistance level of 1.8% and German 10-year yields down to a record low 1.434%.
Spanish and Italian bond yields and default insurance costs surged on Monday on investor fears over Greece and Spain's ailing banks.
Broad risk aversion pressured Asian credit markets, widening the spread on the iTraxx Asia ex-Japan investment-grade index by 7 basis points, but Japanese government bonds rallied to their highest since late 2010.
Flight from riskier assets, together with a firmer dollar, sent the Thomson Reuters-Jefferies CRB index down 1.2% to settle below 290 points on Monday. The index has shed nearly 6% on the year after a downtrend that began with the slide in oil prices over the past few weeks.
Spot gold touched a four-and-a-half month low of $1 552.49 an ounce on Tuesday, as investors dumped bullion for cash.
US crude eased 0.4% to $94.42 a barrel, after falling more than a dollar the previous session while Brent crude fell 0.3% to $111.25, off Monday's near four-month low of $110.04.
