Business World

Friday 24 November 2017

Deadlock over second Greek bailout triggers shares to tumble worldwide

Euro falls to month low while bond yields surge

Thomas Molloy

Thomas Molloy

STOCKS fell across the world as fears grew that European officials will delay a second rescue plan for Greece. The euro tumbled to a month low against the dollar while some Irish and Greek bond yields surged to new highs.

The Stoxx Europe 600 Index, which tracks the continent's biggest companies, fell 1.1pc, extending losses since February to 8pc. The Stoxx 600 has posted six straight weeks of declines, the longest losing streak in almost three years.

Finance Minister Michael Noonan's comments about Anglo Irish bonds led to further falls of the euro against the dollar in late afternoon trading in New York yesterday.

"It had looked like we were making progress on addressing Greece's problems but now it seems things are fraying at the edges," said George Davis, senior currency strategist at RBC Capital Markets in Toronto.

"People are capitulating, taking a defensive posture and getting out of their risky trades."

In the United States, dismal manufacturing and housing data intensified fears of slowing US growth

Banks

National benchmark indexes declined in all of the 18 western European markets, except Iceland. The ISEQ slid 1.4pc in Dublin, the UK's FTSE 100 fell 1pc, France's CAC 40 dropped 1.5pc and Germany's DAX retreated 1.3pc. Stocks from Hong Kong to Sao Paulo followed suit with US stocks also snapping a two-day gain.

Banks were the worst performers in Europe as investors worried about their exposure to Greece. Germany is leading a push for bondholders to shoulder part of the cost of a new Greek aid package.

France's three biggest lenders all declined after Moody's placed their credit ratings on review to scrutinise their holdings of Greek debt.

The euro dropped the most in more than a month against the dollar as the deadlock spooked currency traders. Europe's common currency has depreciated 1.2pc in the past week against nine other developed-nation currencies, according to Bloomberg Correlation-Weighted Currency Indexes.

"They keep talking about kicking the can down the road in Europe," said Quincy Krosby, a market strategist for Prudential Financial. "The can is getting heavier and heavier."

On the bondmarkets, Greek government bonds led declines as the country eyes default. Losses pushed two and 10-year Greek yields to the highest since the euro was introduced in 1999, while yields on Irish 10-year bonds and Portuguese two-year securities also reached records.

Concerns

German bonds gained even as demand declined at a sale of two-year notes and data showed European industrial production unexpectedly rose in April.

"The concerns about Greece are stressing the market" for bonds from peripheral countries, said Norbert Aul, a strategist at Royal Bank of Canada in London.

The yield difference, or spread, between Greek and benchmark German bunds widened to a euro-era record 14.94 percentage points. Irish 10-year yields rose 11 basis points to 11.49pc, posting a seventh consecutive gain. The Portuguese two-year yield jumped 37 basis points to 12.45pc.

The cost of insuring against default on Greek, Irish and Portuguese government debt surged to records, according to traders of credit-default swaps. Greece soared 118 basis points to 1,723 basis points, Portugal climbed 22 to 776 and Ireland rose 22 to 750, according to CMA prices.

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