Singapore: Asian shares fell on Thursday as doubts set in about whether European leaders can agree on a plan to tackle the euro zone’s two-year-old debt crisis at a high-stakes summit on Friday.
A media report that the G-20 was preparing a $600 billion lending facility for the International Monetary Fund (IMF) to help Europe gave a late lift to US stocks and briefly boosted the euro, but the effect faded after it was denied by G-20 and IMF officials.
With big set-piece events looming -- the European Central Bank’s final monetary policy meeting of the year on Thursday and the European Union summit on Friday -- investors were unwilling to commit new funds, leaving riskier assets such as commodities and emerging market currencies subdued.
“We aren’t expecting any great resolution,” said Su-Lin Ong, senior economist and fixed income strategist at RBC Capital Markets in Sydney. “Markets are quite hopeful but we’ve had plenty of EU summits and they tend to disappoint ... There are no silver bullets here.”
The euro edged down ahead of the ECB meeting that is expected to deliver a 25 basis points rate cut, while the Australian dollar fell as disappointing employment data cemented expectations for further cuts in interest rates.
MSCI’s broadest index of Asia Pacific shares outside Japan dropped 0.9%, while Tokyo’s Nikkei share average lost 1.1%. S&P 500 futures were slightly lower, after small gains on Wall Street on Wednesday.
Global equities have enjoyed a brisk rally in recent days, with the MSCI All-Country World Index bounding 9% since the start of last week, on hopes that the threat of financial meltdown would force European leaders to set aside disagreements and come up with a coherent plan to save the euro.
France and Germany will present a plan to amend the EU treaty to anchor stricter budget discipline, aimed at restoring market confidence and stopping the crisis spiralling out of control.
But optimism was tempered on Wednesday, when a senior German official told a pre-summit briefing he was “more pessimistic than last week about reaching an overall deal.”
“My sense is that it could be like the previous EU summit on 26 October, where we saw some progress but details remained sketchy, leaving uncertainty in the market,” said Soichiro Monji, chief strategist at Daiwa SB Investments in Tokyo.
Rate cut expected
Most economists expect the ECB to cut its key interest rate back to the record low 1% it reached during the financial crisis in 2009. Investors will be looking for any hint the ECB will intensify its bond-buying support to the currency bloc’s struggling periphery.
The euro slipped a little to just below $1.34, within the tight $1.3332/3486 range of the past week.
The Australian dollar fell a third of a cent to$1.0249 after data showed one of the developed world’s most resilient economies shed 6,300 jobs in November, while the unemployment rate rose a tick to 5.3%.
The cautious mood seeped into Asian credit markets, with spreads on the iTraxx Asia ex-Japan investment grade index , a gauge of risk appetite, widening by a couple of basis points.
Commodity markets were subdued, with US and Brent crude benchmarks both easing around 10 cents a barrel, while copper was flat around $7,820 a tonne.
Gold, which in recent months has largely switched from a negative to a positive correlation with riskier commodities as safe-haven investors have preferred the dollar to precious metals, slipped 0.2% to around $1,737 an ounce.