World shares struggle on Europe, fiscal cliff worries

After a political crisis in Japan triggered a dissolution of Parliament, euro gained against both the dollar and the yen
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First Published: Wed, Nov 14 2012. 07 31 PM IST
London’s FTSE 100, Frankfurt’s DAX and Paris’s CAC-40 were between 0.2 and 0.5% lower. Photo: Reuters
London’s FTSE 100, Frankfurt’s DAX and Paris’s CAC-40 were between 0.2 and 0.5% lower. Photo: Reuters
Updated: Wed, Nov 14 2012. 10 35 PM IST
New York: Stock markets fell on Wednesday as investors waited for progress in approving aid for Greece and in averting potential US fiscal constraint in early 2013.
The euro, meanwhile, gained against both the dollar and the yen. Elections in Japan are set for next month, and the main opposition party favours further monetary easing.
In the US, stock indexes fell despite strong earnings reported by technology bellwether Cisco and two retail chains.
Investors are wary of the impact tax hikes and severe spending cuts would have on the US economy if President Barack Obama and Congress fail to agree on a plan to avoid the so-called fiscal cliff.
Though Greece is expected to secure short-term funding to meet its debt obligations, international lenders disagree over how Athens can cut its borrowing to more sustainable levels. A deal to release aid payments remains a way off.
The Dow Jones industrial average was down 60.96 points, or 0.48%, at 12,695.22. The Standard & Poor’s 500 Index was down 5.96 points, or 0.43%, at 1,368.57. The Nasdaq Composite Index was down 6.16 points, or 0.21%, at 2,877.73.
Still, the release of minutes from the last Federal Open Market Committee meeting later in the session is likely to confirm an easy monetary policy bias for some time to come.
Meanwhile, a wave of strikes across Europe to protest against spending cuts and tax hikes kept the focus on that region’s debt crisis.
“A quick solution for the US fiscal cliff doesn’t seem to be on the cards and (there are) ongoing worries about Greece and renewed concern about Spain,” said Zeg Choudry, head of equities trading at Northland Capital.
The MSCI world equity index fell 0.7% to 319.89 after five days of losses. Markets across Europe fell, but Asian markets recovered from seven-week lows.
In Europe, investors were unable to shake off concerns about a rekindling of the debt crisis, sending the FTSEurofirst 300 index of top European shares down 0.9% to 1,089.41 points, erasing Tuesday’s 0.4% rise.
“The failure to sustain any momentum to the upside suggests there is a buyers’ strike and they are staying on the sidelines, waiting for a resolution either in Greece or in the US,” Ioan Smith, strategist at Knight Capital said.
London’s FTSE 100, Frankfurt’s DAX and Paris’s CAC-40 were between 0.4 and 0.6% lower.
The concerns over Greece, as well as lingering uncertainty over whether Spain will seek a bailout and the prospect of slow economic growth across the 17-member euro area boosted demand at a German debt auction.
Triple-A rated Germany sold €4.3 billion ($5.5 billion) of two-year bonds that paid no interest, meaning Berlin was able to borrow for free because investors prize the country’s strong fiscal position and highly liquid debt market.
Italy’s borrowing costs also fell at a €3.5 billion sale of new three-year government bonds, which completed its funding needs for the year.
While Italy’s bonds are considered risky because of its high debt levels and weak economic outlook, borrowing costs have been coming down due to the European Central Bank’s promise of support for nation’s struggling to fund themselves.
Japan crisis
The euro meanwhile gained against both the dollar and the yen after Japanese Prime Minister Yoshihiko Noda said he was set to dissolve parliament’s lower house on Friday for a snap election next month, which is likely to cost him his job,
Opinion polls show Noda’s Democratic Party of Japan (DPJ) heading for a drubbing in the vote, which government and senior party members have said would be held on 16 December.
That outcome is regarded as negative for the yen as the main opposition Liberal Democratic Party (LDP) favours further monetary policy easing by the Bank of Japan.
The dollar rose 0.9% to 80.12 yen and the euro climbed 1.2% on the day to 102.10 yen. Against the dollar, the euro was 0.25% higher at $1.2730.
The greenback was easier against most major currencies other than the yen on growing signs that the Federal Reserve was likely to adopt an ultra-loose monetary stance in coming months.
Influential Fed vice chair Janet Yellen said on Tuesday that US interest rates may need to stay near zero until early 2016 to forcefully lift employment.
However, any weakness was still being capped by concerns that Washington will fail to find compromises needed to avoid a series of mandated tax hikes and spending cuts due to take effect next year that could send the world’s largest economy back into recession.
Profit-taking caused US Treasury prices to fall and yields to rise Wednesday after a post-election rally driven by concerns over a potential US fiscal crisis and Europe’s debt woes.
But yields were not expected to stray far from their lowest levels since September with price support from concerns over the so-called fiscal cliff of $600 billion in US spending cuts and tax increases set to start in January that could send the economy back into recession.
Ten-year Treasury notes traded 6/32 lower in price to yield 1.62%, up from 1.59% late Tuesday. The yield on Tuesday touched 1.57%, the lowest in 10 weeks.
China watch
Moves in commodity markets were limited, with traders watching developments in Europe and the US and also wary about the ramifications of the political transition in China due to be announced on Thursday.
On Wednesday, the 2,270 carefully vetted party delegates cast their votes in Beijing’s Great Hall of the People for the new central committee, which in turn will appoint the Politburo Standing Committee that will ultimately rule China.
The new government’s attitude to supporting growth, which has been slowing all year, will be closely watched as China is the world’s top consumer of many commodities.
Three-month copper on the London Metal Exchange was down 0.4% at $7,646 a tonne, while gold rose 0.27% to $1,724.51 an ounce, still below a 3-week peak of around $1,738 struck on Friday.
In oil markets, Brent crude reversed early losses to gain $1.34 to $109.60 a barrel, supported by the dollar’s fall against a basket of currencies, aside from the yen, which makes dollar-denominated oil more affordable.
US oil gained 87 cents to $85.25, snapping two days of losses. REUTERS
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First Published: Wed, Nov 14 2012. 07 31 PM IST
More Topics: Europe | fiscal cliff | japan | greece |