Singapore: Asian stocks and the euro slipped on Wednesday as investors remained unconvinced that euro zone leaders have a coherent plan to tackle the bloc’s sovereign debt problems, which many fear could trigger a new banking crisis.
Global markets have been roiled since the end of July by the twin fears of renewed recession in the United States and Europe’s protracted debt woes, which have seen Greece, Ireland and Portugal forced to take bailouts and piled bond market pressure on Italy and Spain.
“Some of the European banks may have to recapitalise their balance sheets with government assistance. It’s creating a lot of nervousness and uncertainty,” said Simon Bonouvrie, portfolio manager at Platypus Asset Management in Sydney.
Oil eased after the International Energy Agency revised down its forecast for growth in consumption due to the struggling global economy.
Underlining the brittle state of confidence in global markets, gold rose and the dollar and Japanese government bonds (JGBs) edged up as demand for assets perceived as safe havens remained high.
A BEAR MARKET
Japan’s Nikkei share average eased 0.2%, while SCSI’s broadest index of Asia Pacific shares outside Japan fell 1.0%, with South Korean shares losing 2.2% .
The MSCI index is now more than 20% below its 2011 high reached in April. A decline of 20% or more is the rule-of-thumb definition of a bear market.
U.S. stocks rose on Tuesday, with the S&P 500 up 0.9%, amid hopes that European leaders would take action soon to ease the two-year-old debt crisis.
Markets had been spooked in recent days by renewed talk among euro zone policymakers of an imminent default by Greece, prompted by the country’s failure to meet the fiscal goals set out in its European Union/IMF bailout.
Greek, German and French leaders were due to hold a conference call at 1600 GMT on Wednesday.
“The conference call will at least calm nerves ... and may provide 24 hours of reprieve. That’s about it, though,” said Sean Callow, a senior currency strategist at Westpac in Sydney.
The euro edged down to around $1.3660 , having jumped more than a cent in the previous session on news of the conference call. The single currency tumbled to a seven-month trough of $1.3499 earlier this week.
The dollar index rose 0.3% against a basket of major currencies.
The exposure of European banks to sovereign debt has raised fears of a freezing of credit markets in a re-run of the panic that gripped the financial sector after the collapse of Lehman Brothers in late 2008.
Data from the Institute of International Finance this month showed European banks have 3 trillion euros invested in sovereign debt, or 8% of their total assets.
A Brazilian source told Reuters on Tuesday that the Brics group of big emerging economies was in preliminary talks on increasing their holdings of euro-denominated bonds to help ease the euro zone crisis.
Gold rose 0.5% to around $1,843 an ounce, while benchmark 10-year JGB futures inched up 0.07 point to 142.64, with the 10-year yield easing 0.5 basis point to 0.995%.
“People are hesitant to sell bonds because they think it will be hard to solve the fundamental problems of the euro zone,” said a trader at a Japanese bank.
Reflecting the gloomy outlook for the developed world, the Asian Development Bank on Wednesday trimmed its 2011 and 2012 growth forecasts, while noting the region’s emerging economies were showing resilience.
Expectations of sagging growth hurt commodities that are dependent on industrial demand.
US crude oil fell 0.9% to $89.39 a barrel, while Brent crude eased 0.3% to $111.53. Copper weakened 0.2% to $8,750 a tonne.