Slight recovery in Asian markets, Greece fears remain
TOKYO, May 17 — Asian shares today recovered a bit of the ground lost in the previous day’s sell-off, but investors found no reason to bet on risk amid deepening turmoil in Greece and fears of contagion to other stressed euro zone economies.
MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.5 per cent on short covering, after sliding more than three per cent — its biggest one-day drop in six months — yesterday.
The index hit a new four-month low yesterday, and has shed 9.6 per cent since May 2.
Gold and the euro recovered from yesterday’s lows as a recovery in shares helped improve sentiment slightly.
Bucking the general trend of recovery in Asia-Pacific, Australian shares bucked the general recovery, falling 0.6 per cent to a four-month low, with banks easing on more signs of pressure on margins.
Japan’s Nikkei stock average was flat.
News yesterday that some Greek banks face emergency funding needs dealt a further blow to risk sentiment, already beaten down by worries about much slower economic growth in China, a fragile US jobs market and the huge trading loss at JPMorgan Chase & Co, widely perceived to be excellent at risk management.
“May is typically a bear month for markets as players often look to take advantage of the saying, ‘sell in May and go away,’ but all the negative factors compounded to give momentum to sell risk assets indiscriminately,” said Bob Takai, general manager of Sumitomo Corp’s energy division.
“Pressures to shed financial premiums will likely persist for the next two to three quarters,” he said.
The European Central Bank said it has stopped providing liquidity to some Greek banks that have not been successfully recapitalised, highlighting the weak state of the banking sector in the indebted country.
Greece yesterday put a senior judge in charge of an emergency government to lead the nation to its second election in just over a month on June 17. The vote will likely determine whether Greece remains in the common currency area.
The head of the World Bank warned yesterday that a decision by Greece to leave Europe’s common currency zone would raise big questions about the impact on Spain, Italy and other euro zone countries with big debt loads that are undergoing structural reforms.
ANZ of Australia said in a research note that its baseline scenario was a 70 per cent probability of the euro zone staying intact and a 50 per cent probability of a policy shift to growth over austerity, giving some support to risk assets and the euro.
It put the chance of a disorderly exit at four per cent and the likelihood of a total break-up of the euro zone at just one per cent.
Stress levels eased slightly but remained high in Asian credit markets, with the spread on the iTraxx Asia ex-Japan investment-grade index narrowing four basis points to hover just below its widest since mid-January.
The euro added 0.2 per cent at US$1.2743, off a four-month low of US$1.26811 reached yesterday, and the Australian dollar, typically linked to risk appetite, also rose 0.2 per cent to US$0.9936, having hit a five-month low of US$0.9870 yesterday.
The dollar index measured against key currencies remained near a four-month high reached yesterday, as investors favoured safe havens.
Uncertainty about Greece’s future in the euro nudged some indicators of money market stress higher yesterday, but they were still well below last year’s levels given a banking system awash with central bank cash.
Three month euro/dollar cross currency basis swaps , which show funding stress when investors compete for dollars, widened to minus 54 basis points from around minus 46 bps in early May. It marked minus 167.5 in November when investors feared another credit crunch.
Oil regained ground, with US crude futures up 0.5 per cent at US$93.24 a barrel, after settling down more than US$1 yesterday. Brent futures, however, fell 0.3 per cent to US$109.46 a barrel today.
Spot gold also recovered from Wednesday’s 4-1/2 month low of US$1,527 (RM4,581) an ounce to trade up 0.6 per cent at US$1,547.40 as bargain hunting set in.
Some positive economic news emerged from Japan, the world’s third-largest economy, helping to sooth sentiment.
Japan’s economy bounced back from a year-end lull in the first quarter, powering ahead of other major industrial nations, growing 1.0 per cent in the January-March quarter, while growth in the final three months of 2011 was revised to flat from a 0.2 per cent contraction, data showed today.
But overnight, minutes for the Federal Reserve’s April meeting showed several members of the US central bank’s policy-setting committee had indicated that additional monetary policy accommodation could still be necessary given downside risks to a moderately expanding economy. — Reuters