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Euro plunges, stocks fall on more Greek worries

Euro plunges, stocks fall on more Greek worries
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First Published: Fri, Apr 23 2010. 12 58 AM IST
Updated: Fri, Apr 23 2010. 12 58 AM IST
New York: The euro plunged to its lowest level against the dollar in almost a year on Thursday and US and European equities fell after Moody’s slashed Greece’s sovereign rating, hours after the European Union said the country’s budget deficit was worse than feared.
Crude oil prices also declined as the increasing evidence of Greece’s deteriorating financial position eroded risk appetite across global markets. Prices of US Treasuries rose as investors sought safety.
Moody’s Investors Service downgraded Greece’s sovereign rating one notch to A3, four notches above speculative, or “junk” status, citing risk that the debt-strapped country may end up paying much more for its borrowing than previously thought.
Earlier, the EU’s official statistics agency said the Greek budget deficit last year was 13.6% of gross domestic product, and not the 12.7% estimated by the Greek government.
The news intensified fears about Greece’s ability to avoid default.
The euro plunged for a sixth-straight session to to $1.3260 after the Moody’s news, its lowest level since May 2009, according to Reuters data. It was last at $1.3294, down 0.7% on the day. Against the pound, the euro fell as low as 86.32 pence, its weakest since late January.
The cost of insuring Greek government debt against default hit a record high above 600 basis points. Five-year credit default swaps on Greek government debt rose to 616 basis points, making it the most expensive sovereign debt in Europe to insure against default, according to CMA DataVision.
“There’s death and destruction in the Greece bond market today,” said Ward McCarthy, chief financial economist at Jefferies & Co. in New York.
The news on Greece weighed on equities markets.
“Today it is a Greek story. The market seems to be pricing in some default or restructuring,” said Mike Lenhoff, chief strategist at Brewin Dolphin.
“The Moody’s downgrade is another part of the saga. Each time we have some sort of announcement and get closer to a resolution, there seems to be another stage to overcome.”
In mid-day trading, the Dow Jones Industrial Average was down 78.97 points, or 0.71%, at 11,045.95, while the Standard & Poor’s 500 Index was down 9.67 points, or 0.80%, at 1,196.27. The Nasdaq Composite Index was down 17.98 points, or 0.72%, at 2,486.63.
The pan-European FTSEurofirst 300 index of top shares closed down 1.1% at 1,083.88 points, having earlier been up as much as 1,102.69 points.
European banks extended their slide from the previous session. Greek banks slipped 5.4%.
MSCI’s all-country world equity index was down more than 1%.
Greek t-bills more than doubled
Greece has been struggling to persuade markets it can slash its budget deficit and avoid default. It needs to raise €10 billion next month with an €8.5 billion bond falling due on 19 May.
“There seems little hope of a significant fall in yields before the markets see cash in Greek hands. The only way Greece stands a chance of refinancing the 8 billion euros or so of debt that matures in mid-May without paying an exorbitant interest rate will be to put the bailout package in motion as soon as possible,” said Ben May, European economist at Capital Economics, in a note to clients.
Adding to the sour sentiment in equities, technology shares tumbled on disappointing forecasts at Nokia, eBay Inc. and Qualcomm Inc..
Nokia cut its profit outlook for its key phone unit. Its US-listed shares tumbled roughly 14% to $12.93.
Chip maker Qualcomm late on Wednesday gave a weak forecast for the current quarter and full year, sending its stock down nearly 8% on Thursday.
Shares of eBay also dropped about 8% after its forecast for the rest of the year fell short of Wall Street expectations.
US Treasury debt prices rose on the worries over Greece, despite stronger US economic data.
The benchmark 10-year US Treasury note was up 3/32, to yield 3.73%, while the two-year US Treasury note was up 1/32, yielding 0.98%. The 30-year US Treasury bond was up 5/32, with the yield at 4.61%.
In currencies, the dollar was up against a basket of major trading-partner currencies, with the US Dollar Index up 0.56% at 81.612 from a previous session close of 81.161.
Against the Japanese yen, the dollar was down 0.03% at 93.10 from a previous session close of 93.130.
In energy and commodities prices, US light sweet crude oil fell 56 cents, or 0.67%, to $83.12 per barrel. Gold prices fell under pressure from the stronger dollar. Spot gold fell $5.35, or 0.47%, to $1,139.90. The Reuters/Jefferies CRB Index was down 0.04 points, or 0.01%, at 276.71.
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First Published: Fri, Apr 23 2010. 12 58 AM IST
More Topics: Global Markets | Euro | Greece | Debt | Nasdaq |