All data is delayed
See More

Stocks slip as focus turns to Spain

Jun 19 2012 08:14

Singapore - Asian shares edged down on Tuesday as rising Spanish bond yields stoked fears its tottering banking system is dragging Madrid deeper into crisis, snuffing out a relief rally that followed a win for mainstream parties in Greece's weekend election.

The euro arrested a slide to clamber back above $1.26, but remained a good distance off the high of $1.2748 scaled in early Asian trading on Monday, when markets were cheering a narrow victory for supporters of Greece's international bailout deal.

"The Greek election result gave the market a brief respite, that was it, now investors are clearly focused on Spanish government bond yields," said Michael Creed, an economist at National Australia Bank.

Tokyo's Nikkei share average lost 1%, while MSCI's broadest index of Asia Pacific shares outside Japan eased 0.1%. Both indexes had climbed more than 1.5% on Monday.

European stocks, which gave up early gains to end down or flat on Monday, were set for a cautious start, with financial bookmakers calling the main indexes to open flat to 0.3%higher. US index futures were down around 0.1%.

Sunday's election result removed concerns that Greece could imminently be forced out of the eurozone, but it brought no relief to broader worries that the two-and-a-half-year-old debt crisis is spreading to some of the bloc's larger economies.

Yields on both Italian and Spanish bonds rose on Monday, with Spain's 10-year yield climbing to a euro-era high above the 7% mark that has already proved unsustainable for Greece, Portugal and Ireland.

European authorities have already agreed to a €100bn rescue for Spain's troubled banks, and data showing bad loans in the sector had climbed to their highest since April 1994 heightened concerns that the eurozone's fourth largest economy could be driven to seek a full-blown bailout.

"The jump in Spanish borrowing costs shows very clearly that global leaders are running out of time to find the solution to the eurozone crisis," said Michiyoshi Kato, senior vice president of forex sales at Mizuho Corporate Bank in Tokyo.

Euro steadies

The euro traded around $1.2605 on Tuesday, up about 0.2% on the day but down around 0.4% from Friday's close.

Leaders from the Group of 20 countries meeting in Mexico will press Europe to take bold action to combat the region's debt crisis, according to a draft communique prepared for the two-day summit.

Commodities, which had raced higher on Monday in a broad rally of riskier assets, were mixed.

Brent crude slipped 15 cents to $95.90 a barrel, but copper rose 0.3% to around $7 530 a tonne. Gold was virtually unchanged around $1 628 an ounce.

Investors were reluctant to commit large bets ahead of a two-day Federal Reserve policy meeting starting on Tuesday, with attention focused on whether the US central bank will unveil any more stimulus measures to support a flagging recovery.

The market consensus was that further quantitative easing - effectively creating money to purchase assets - was unlikely for now, but that recent disappointing economic data could prompt the Fed to extend its long-term bond-buying programme, known as Operation Twist, by a few months from the current June deadline.

The liquidity boost delivered by previous doses of monetary stimulus from the Fed has lifted global equities and most commodities, and markets have become highly sensitive to the waxing or waning of expectations of more such measures.

In currency markets, the euro's recovery from its two-year low at $1.2288 hit on June 1 has been driven by a broad weakness in the US dollar based on speculation about more Fed easing.

"I think we won't see a full-fledged QE 3, but an extension of Operation Twist is likely," said Teppei Ino, currency analyst at the Bank of Tokyo-Mitsubishi UFJ. "No action from the bank would have the euro go back towards its low of June 1."

spain  |  europe debt crisis  |  markets  |  euro



Read Fin24’s Comments Policy publishes all comments posted on articles provided that they adhere to our Comments Policy. Should you wish to report a comment for editorial review, please do so by clicking the 'Report Comment' button to the right of each comment.

Comment on this story
Comments have been closed for this article.

Company Snapshot

We're talking about...


So, the worst has finally happened. S&P and Fitch officially downgraded SA to junk status following the ill-timed Cabinet reshuffle.

Money Clinic

Money Clinic
Do you have a question about your finances? We'll get an expert opinion.
Click here...

Voting Booth

Do you have a budget set aside for Easter holiday spending?

Previous results · Suggest a vote