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New York - Stocks dropped and the euro weakened on Monday as worries that Italy could become the new focus in the eurozone debt crisis caused investors to sell risky assets.
Oil fell on fears of slowing demand, including a drop in China’s crude imports, while bond and gold prices rose.
The concern over Italy, the eurozone’s third-largest economy, prompted an emergency meeting of top European Union officials.
Italian government bonds and stocks dropped as investors cut their exposure amid fears that the country, with the highest sovereign debt ratio relative to gross domestic product (GDP) in the eurozone after Greece, could be next to get dragged into crisis.
“Italy would be a challenge that makes Greece look miniature by comparison,” said Karl Schamotta, senior strategist at Western Union Business Solutions in Calgary. “We have a wide-ranging contagion issue here - or at least the perception of one - and that’s making people very nervous.”
A weaker-than-expected US jobs report on Friday and data showing China’s import growth fell to its slowest pace in 20 months also drove investors away from stocks.
The MSCI world equity index fell 1.9% to a one-week low and major US stock indexes dropped more than 1%.
The JSE and rand were also hit. The all-share index lost 0.49%, with banks down 0.60% and financials off 0.54%. Platinum miners dropped 1.91%, resources moved 0.74% lower, but gold miners gained 0.80%.
The rand was bid at R6.84/$, from R6.69/$ at the JSE's close on Friday
Wall Street wary
Soon after the opening the Dow Jones industrial average was down 1.19% percent, the Standard & Poor’s 500 Index fell 1.59% and the Nasdaq Composite Index lost 1.69 percent.
Besides watching developments in Italy, US stock investors were awaiting results from aluminum maker Alcoa after the close of trade. The company’s earnings typically kick off the US reporting period.
The pan-European FTSEurofirst 300 index of top shares provisionally closed 1.5% down, its lowest closing level since June 28, while emerging market stocks lost 1.7%.
In the foreign exchange market, the dollar rose 1% against a basket of major currencies. The euro was down 1.6% at $1.4037.
JP Morgan said Italian banks are vulnerable because of their high reliance on wholesale funding. Moreover, their government bond holdings stand at 6.33% of assets, higher than those of Spanish banks.
The benchmark 10-year U.S. Treasury note was up 21/32, its yield at 2.9462%.
“We are seeing some follow-through buying in Treasuries, and the European situation continues to fester. It is just an environment where there are a lot of factors that are stacking up as bullish for bonds,” said Marty Mitchell, head of government bond trading at Stifel Nicolaus in Baltimore.
Oil prices were pressured by the concern over the European debt crisis. Brent crude for August was down 80 cents at $117.53, after paring earlier losses. On the New York Mercantile Exchange, crude for August delivery was down $1.30 at $94.90.
Spot gold rose to a 2-1/2-week high of $1 556.59 before slipping to trade at $1 554.50 an ounce.
Data last Friday showed US jobs growth nearly halted in June, adding to concerns about the health of the world’s biggest economy.
Oil fell on fears of slowing demand, including a drop in China’s crude imports, while bond and gold prices rose.
The concern over Italy, the eurozone’s third-largest economy, prompted an emergency meeting of top European Union officials.
Italian government bonds and stocks dropped as investors cut their exposure amid fears that the country, with the highest sovereign debt ratio relative to gross domestic product (GDP) in the eurozone after Greece, could be next to get dragged into crisis.
“Italy would be a challenge that makes Greece look miniature by comparison,” said Karl Schamotta, senior strategist at Western Union Business Solutions in Calgary. “We have a wide-ranging contagion issue here - or at least the perception of one - and that’s making people very nervous.”
A weaker-than-expected US jobs report on Friday and data showing China’s import growth fell to its slowest pace in 20 months also drove investors away from stocks.
The MSCI world equity index fell 1.9% to a one-week low and major US stock indexes dropped more than 1%.
The JSE and rand were also hit. The all-share index lost 0.49%, with banks down 0.60% and financials off 0.54%. Platinum miners dropped 1.91%, resources moved 0.74% lower, but gold miners gained 0.80%.
The rand was bid at R6.84/$, from R6.69/$ at the JSE's close on Friday
Wall Street wary
Soon after the opening the Dow Jones industrial average was down 1.19% percent, the Standard & Poor’s 500 Index fell 1.59% and the Nasdaq Composite Index lost 1.69 percent.
Besides watching developments in Italy, US stock investors were awaiting results from aluminum maker Alcoa after the close of trade. The company’s earnings typically kick off the US reporting period.
The pan-European FTSEurofirst 300 index of top shares provisionally closed 1.5% down, its lowest closing level since June 28, while emerging market stocks lost 1.7%.
In the foreign exchange market, the dollar rose 1% against a basket of major currencies. The euro was down 1.6% at $1.4037.
JP Morgan said Italian banks are vulnerable because of their high reliance on wholesale funding. Moreover, their government bond holdings stand at 6.33% of assets, higher than those of Spanish banks.
The benchmark 10-year U.S. Treasury note was up 21/32, its yield at 2.9462%.
“We are seeing some follow-through buying in Treasuries, and the European situation continues to fester. It is just an environment where there are a lot of factors that are stacking up as bullish for bonds,” said Marty Mitchell, head of government bond trading at Stifel Nicolaus in Baltimore.
Oil prices were pressured by the concern over the European debt crisis. Brent crude for August was down 80 cents at $117.53, after paring earlier losses. On the New York Mercantile Exchange, crude for August delivery was down $1.30 at $94.90.
Spot gold rose to a 2-1/2-week high of $1 556.59 before slipping to trade at $1 554.50 an ounce.
Data last Friday showed US jobs growth nearly halted in June, adding to concerns about the health of the world’s biggest economy.
