Nervous investors took their favourite option yesterday when confronted with lack of any solid achievement from the much touted eurozone and EU finance ministers’ meeting in Poland yesterday and other news indicating that the Greek stand off on the second bailout remains unresolved: they sold.
Complicating matters last night were reports of another big loss for German Chancellor, Angela Merkel in a state election in Berlin on Sunday.
So down went markets across Asia and into Europe, and then the US.
The MSCI Asia Pacific excluding Japan index dropped 1%, Australia’s ASX 200 lost 1.6% and South Korea’s Kospi Composite fell 0.7% as financial shares and commodity producers took a beating in both markets.
Hong Kong’s Hang Seng index fell 2.8%, ending a three-day winning streak, while China’s Shanghai Composite index slid 1.8%. Japanese markets were closed for a holiday.
The FTSE 100 index fell 2%, while the French CAC 40 index was down 3%, the German DAX 40 index lost 2.8% loss and the Italian market lost more than 3%.
Wall Street fell 1.5% at the start and stayed around that level for most of the day until a rally in the last hour cut the loss.
Reports that Greece was near a deal with the IMF, EU and European Central Bank helped end the sell off.
Talks will continue tonight, our time, according to reports in Europe.
Local markets will probably open stronger as a result.
US Government bonds saw yields plunge as investors sought safety once again: the yield on the 10 year security dropped 0.14% to 1.94%.
Spot gold rose $US8.10 to $1,820.60 an ounce in Asia, then plunged in later trading in Europe to be down around $US38 an ounce at $US1,777 an ounce, while Nymex WTI October crude oil futures fell more than 2% to around $US85.70 a barrel.
Copper surprised with a sharp 4% plunge in New York to close at $US3.77 a pound.
The US dollar rose on safe haven buying, and the Australian dollar dropped under $US1.02 and looks weak.
And the rally late last week looked more and more like what we described in Monday’s AirDaily, one for the suckers who bought on the basis of the central bank US dollar bailout of eurozone banks, and ignored the lack of any accompanying political progress.
On top of that, the silly expectation from some investment banks and other speculators that the US Fed will reveal a new set of stimulus measures on Thursday morning, our time, has no doubt added to the buying in shares as they seek to spend whatever cash can be generated from any move by the central bank.
It is unlikely that the Fed will do anything concrete this week except mention a range of possibilities in its post meeting statement, and then more at its November meeting.
President Obama revealed plans overnight to cut $US3 trillion over the next 10 years from US Government spending: good luck and don’t take any notice of this until after November, when the special Congressional Committee looking at cuts, is due to report.
And wait until the results of the November 2012 Presidential election are in before taking the Obama proposals seriously (and even then they might have more trouble being enacted).
There simply too many uncertainties on both sides of the Atlantic to take any market advance longer than a day or two, seriously in terms of a sustainable recovery.
So with that thinking it mind it was no wonder that Asian stockmarkets fell yesterday.
The decision by Greek Prime Minister George Papandreou decided to stay at home rather than travel to the US as planned in order to chair emergency meetings of the Greek government was the major confidence shifter.
“We now think that the [Greek] government may end up defaulting within months or perhaps even weeks. With concerns about banks’ solvency likely to increase as problems in the highly indebted economies intensify, banks could soon be forced to borrow more from the European Central Bank and rein in their lending,” said economists at Capital Economics.
“All this, coupled with the recent weak activity data, means that we now expect the euro-zone economy to contract by about 0.5% next year and 1.0% or so in 2013,” they said.
Crédit Agricole said in a note to clients. “Overall, the week is starting nervously and will probably shape up to be another risk-off week unless the [US Federal Reserve] provides a much-needed boost to confidence,” it added.
Without the $US8 billion in aid from the May 2010 bailout package, Greece will run out of money by mid-October.
