Tokyo: Asian shares slipped and the euro touched a 23-month low on Wednesday, as fears mounted that Spain’s banking woes will push its borrowing costs to unsustainable levels while signs emerged that China may move cautiously on stimulus measures to bolster its economy.
MSCI’s broadest index of Asia-Pacific shares outside Japan dipped 1.5%, led by the energy and materials sectors. The decline knocked the pan-Asian index back toward a five-month low hit last week.
Japan’s Nikkei average fell 1%.
The euro fell as low as $1.24572 while the Australian dollar, typically seen as a gauge of risk appetite, declined 0.6% to the day’s low around $0.9775 after weaker-than-expected Australian retail sales data.
The euro’s plight continued to underpin the dollar index , measured against a basket of major currencies, which rose above 82.61 on Wednesday to its highest since September 2010 and dragged down dollar-sensitive commodities.
The Reuters/Jefferies CRB Index was down 0.8% at 279.74 late on Tuesday, after touching a 20-month low of 279.49.
“Concerns in Spain and the negative news from the ECB are putting commodities under pressure, but they shouldn’t. I think the markets are a bit ahead in currencies,” said Jonathan Barratt, chief executive of BarrattBulletin, a Sydney-based commodity research firm.
“I actually feel there is more good news out there at the moment than negative news, and as a result of that, the dollar index, which is reaching a very important level, should come under pressure. It’s time to consolidate, and I look for that.”
Barratt said markets have become better-educated regarding the extent of the euro zone’s debt woes while Greek voters were showing signs they want to stay in the currency union, helping to remove one uncertainty. The US economy remains on recovery track to underpin demand for some commodities such as oil, he said.
A weaker euro suppressed gold, pushing it down 0.4% to $1,547.81 an ounce on Wednesday, after it fell 1% the previous session.
US crude futures fell 0.5% at $90.34 a barrel, while Brent futures also fell 0.4% at $106.30 a barrel.
Asian credit markets weakened, with the spread on the iTraxx Asia ex-Japan investment-grade index widening by 2 basis points.
Indications that China may take a cautious approach to stimulating its economy as growth weakens also dampened sentiment in the markets.
“Infrastructure investment will be the de facto key policy tool in the next few months, which supports our forecast for a rebound in growth in H2. However, Chinese policymakers will not commit themselves to a predefined sizable investment stimulus plan like in late 2008,” said Societe Generale analyst Wei Yao.
Major US stock indexes and European shares had closed higher on Tuesday, partly on hopes over Greece’s fate.
Greece’s pro-bailout conservatives are leading ahead of a national parliamentary election on 17 June that may determine whether the country remains in the euro zone, an opinion poll showed on Wednesday.
But Spain took centre stage, with its plan to issue new bonds in the near future - to fund ailing lenders and indebted regions - fuelling fears that the country’s refinancing stresses could spin out of control and push borrowing costs above 7%, which is seen as unsustainable.
Sovereign debt yields exceeding that level have prompted other troubled euro zone economies to seek a global bailout.
The European Central Bank threw cold water on expectations that the bank would extend help to ease Spain’s funding woes, saying it was not discussing restarting its bond purchases.
The European Commission will set out its economic strategy for the euro zone on Wednesday, spelling out measures to balance growth with unpopular fiscal consolidation that will be particularly pointed for Spain and Italy.
Investors are looking for fresh catalysts to provide direction at least for the near term as they await Greece’s election.
One possible catalyst is US May jobs data due on Friday, which will help investors to gauge the strength of the US economic recovery. Employers are expected to have added 150,000 new workers to their payrolls, according to a Reuters survey, after adding 115,000 in April, the fewest in six months.
China’s official manufacturing data is also due on Friday.