Hong Kong: The euro slid on Wednesday, with trade driven by fears that Europe’s debt woes can wreak havoc in its banking system, though Asian stocks edged up from nine-month lows as value investors hunted for bargains.
Increasingly difficult financing conditions in the euro zone, tightening US banking regulation and escalating tensions on the Korean peninsula have kept investors slashing risk in their portfolios.
Wall Street rallied late on Tuesday to finish flat, briefly pushing up US stock futures. Yet, persistent selling of euros and Australian dollars against the yen during early Asian trade deflated hopes for a sustained shift in sentiment and cut the gains in equities.
“Doubts and caution pervade the market. There are doubts whether southern European countries are the only ones with debt problems,” said Suh Dong-pil, a market analyst at Hana Daetoo Securities in Seoul.
“Growing tensions with North Korea are also a negative.”
The euro was down 0.7% on the day at $1.2285 , creeping back down to a four-year low near $1.2140 hit on 14 May. The euro is poised for its biggest monthly decline since January 2009.
Against the yen, the euro was down 1.1% to ¥110.60, with support at ¥108.85, an 8-1/2-year low struck on Tuesday.
The Australian dollar fell 0.9% to $0.8210 , on track for the biggest monthly decline since October 2008.
Stress in funding markets has brought back painful memories to the fallout from the Lehman Brothers failure in 2008.
The combination of a rush out of euros and into US dollars and fears that last weekend’s takeover of a small Spanish savings bank by the central bank might be a sign of more widespread trouble have pushed up short-term US dollar financing costs.
Three-month dollar Libor fixed on Tuesday at 0.5362 , the highest since July 2009, having more than doubled in the past three months.
A Reuters poll of money market traders showed the rate was expected to rise to 0.70 percent over the next month.
Japan’s Nikkei share average rose 0.4% after plumbing a six-month low on Tuesday, but was ultimately dependent on the direction of the euro.
“We’re likely to see short-covering and bargain-hunting today, given how far the Nikkei fell yesterday,” said Toshiyuki Kanayama, a market analyst at Monex Inc in Tokyo. “But there’s still a lot of longer-term uncertainty and if the euro turns volatile the way it was yesterday, things could change.”
The MSCI index of Asia Pacific stocks outside Japan was up 0.7%, helped by a bounce in resource-related shares. Since peaking in the latest bull market rally on 15 April, Asian stocks have fallen 18%, just short of a 20% mark usually defining a bear market.
The index was trading at 11.8 times earnings expected in the next 12 months, the lowest since March 2009, Thomson Reuters I/B/E/S data showed.
Valuations have also tumbled in Japanese, US and European equities to where they were at the start of the 2009 rally, but with investors focused on broad economic and financial risks, attractive prices may not be enough to support the market in the near term.
Ten-year US Treasury note futures were basically flat, cutting earlier losses as equities retraced gains. The cash market rose, with the benchmark 10-year yield at 3.1560% compared with Tuesday’s intraday low of 3.0642%.
US crude for July delivery rallied 0.8% to $69.29 a barrel, after a report of a bigger-than-expected decline in gasoline inventories.