Risk assets weaken after French, Greek elections
TOKYO, May 7 — Risk assets fell broadly today after elections in Greece and France fuelled questions about whether struggling euro zone economies will continue to pursue austerity measures seen by markets as crucial to resolving the bloc’s debt crisis.
US stock futures were down 1.1 per cent, indicating a big drop for MSCI’s broadest index of Asia-Pacific shares outside Japan. Japan’s Nikkei stock average is expected to open sharply lower today.
US crude futures dropped more than US$3 a barrel to a low of US$95.34 a barrel while Brent crude also fell more than US$2.50 to a low of US$110.34 after the Greek and French elections and weak US jobs data on Friday.
The Australian dollar fell to a four-month low near US$1.0115 against the dollar today while the euro fell to its lowest since January 25 of US$1.2956.
“Austerity will not work to solve Europe’s debt crisis,” said Jeff Sica, president of SICA Wealth Management, which manages over US$1 billion (RM3 billion) in client assets, real estate and private equity holdings. “However shifting austerity to higher earners and business will accelerate the debt crisis.”
Socialist Francois Hollande swept to victory in France’s presidential election, ousting incumbent Nicolas Sarkozy, who had played a key role in structuring bailout schemes for indebted euro zone members and pushed for strict fiscal policies aimed at managing huge debts, in close cooperation with German Chancellor Angela Merkel.
In Greece, voters rejected pro-bailout policies that have shielded Athens from bankruptcy and a euro exit, dealing a serious blow to the fragile political consensus that has kept Europe’s currency bloc intact through more than two years of crisis.
The results put pressure on Germany to take a more growth-oriented approach to the crisis.
Merkel invited Hollande to visit Berlin as soon he can for a meeting that will set the groundwork for a consensus on growth policies vital to the euro zone’s future health.
“The Merkel-Hollande initiative will never materialise due to Hollande and Merkel being polar opposites with no chance to agree on anything,” Sica said.
Investor sentiment had already weakened substantially on Friday on weak data in both Europe and the United States/
Wall Street posted its biggest weekly fall this year after US jobs data showed 115,000 workers were hired in April, well below forecasts of 170,000, raising questions about the growth prospect in the world’s largest economy.
European stocks and oil prices were also pulled down on Friday by a sharp drop in Markit’s Eurozone Services PMI, which gauges business activity, to 46.9 for April from 49.2 in March, suggesting recession in the euro zone could extend to mid-year and be deeper than previously imagined. — Reuters