Shares, euro slump on growth worries
Tokyo, July 9, 2012
Asian shares slumped on Monday after sluggish US jobs data deepened worries about slowing global economic growth, and reinforced risk aversion ahead of China inflation figures and a meeting aimed at defining steps to shore up Europe's banks.
The euro fell to a two-year low of $1.2225 in early Monday Asian trade, while commodity-linked currencies such as the Australian dollar and the New Zealand dollar, typically indicative of risk appetite, hit one-week lows.
US employers added 80,000 new jobs in June, below 90,000 forecast. While the data was seen as not strong enough to prompt any immediate action, it boosted the chances of the Federal Reserve launching a new round of monetary stimulus to boost growth, a poll showed.
MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.5 percent after rising 1.6 percent for the first week of the third quarter, and Japan's Nikkei average opened down 1.1 percent.
The price of 10-year Japanese government bond futures jumped to their highest since October 2010.
The weak US nonfarm payrolls report pushed U.S. stocks down about 1 percent and European shares to post their worst one-day fall in around two weeks on Friday. Borrowing costs in Spain topped the critical 7 percent level and while those for Italy surged.
Investors' renewed flight to safety comes despite a surprise agreement by European leaders late in June on steps to shore up the region's banks and help bring down borrowing costs for struggling member states, and a slew of monetary easing last week to fend off an economic deterioration.
'The focus has clearly shifted to economic fundamentals,' said Park Suk-hyun, an analyst at KTB Securities, noting that the market will likely face pressure with a raft of Chinese data due throughout the week.
China's June inflation data is due at 0130 GMT, the first key figure after it surprised markets with a rate cut last week.
Premier Wen Jiabao said on Sunday that China needs to make aggressive efforts to fine-tune its economic policies in order to support an economy still under downward pressures, suggesting Beijing will take further action to fight slowing growth.
US crude futures inched down 0.1 percent at $84.36 a barrel on Monday while Brent stood steady around $98.16, after settling down more than $2 on Friday on concerns that a sluggish global economy would curb demand for petroleum.
Euro zone finance chiefs will try to flesh out plans to reinforce the single currency on Monday but their talks may merely highlight the limitations of last month's deal to help indebted states and banks.
Spanish Prime Minister Mariano Rajoy said on Saturday his government would take further deficit-cutting measures in coming days and he renewed a call on euro zone leaders to quickly implement a rescue plan for Spain's banks.
Rising Spanish and Italian bond yields and declining German yields just a week after the European meeting indicates that investors are increasingly focusing on the implementation hurdles for the European proposals, said Barclays Capital analysts in a research note.
'More tangible action in the form of risk sharing is needed now. Absence of more flexible and larger financial assistance is set to weigh on the periphery,' Michala Marcussen, an economist at Societe Generale, said in a research note.
Asian credit markets weakened with the return of risk aversion, pushing the spread on the iTraxx Asia ex-Japan investment-grade index wider by 3 basis points.-Reuters