Business World

Thursday 14 December 2017

Shares, euro and oil dive as markets fear growing crisis

Thomas Molloy

Thomas Molloy

SHARES, oil, commodities and the euro fell sharply yesterday as Spain's economic and banking crisis was deepening and on renewed concerns Greece may fall out of the eurozone.

The euro came close to two-year lows against the dollar and slid for a seventh day against the yen, the longest losing streak in four months, as Spain's problems mounted and Italy sold less than its maximum target at a debt auction. The euro has depreciated 6.4pc against the dollar this month, the most since September, and slid 7.5pc versus the yen.

"All roads lead to a weaker euro," said Richard Franulovich, a senior currency strategist at Westpac Banking in New York. "You've got a crisis of confidence. The credibility of the policy makers is at stake and that pressures the euro."

Oil fell more than 3pc, with worry mounting about the demand outlook as Europe's debt crisis deepens by the day. As crude futures headed for double-digit percentage losses for May, equities and other commodities, like industrial feedstocks platinum and copper, also felt pressure from the worsening expectations for the eurozone economy.

Gold dipped to a one-week low, tracking the weaker euro on heightened worries about the eurozone debt crisis. Gold has recently been moving in lockstep with the single currency, which is keeping the dollar strong.

Among the worst performing indices was Spain's Ibex 35 index, which slumped 2.8pc to a fresh nine-year low as investors worried that soaring borrowing costs may force a bailout.

Back home, Ireland's two-year borrowing costs rose above its 10-year bond yields for the first time since January on fears that a shock No vote in today's referendum would threaten the country's access to further bailout funds.

"It's not inconceivable the No vote will win and so I think things are going to remain uneasy until we see the outcome of the referendum," said Alan McQuaid, chief economist at Bloxham Stockbrokers.

The Irish bond yield curve inverted when two-year borrowing costs rose 18 basis points to 7.448pc, above the 10-year yield of 7.435pc.

Risks

An inverted yield curve can indicate that investors see greater risks to the repayment of their cash in the short term than over a longer time frame -- a trend exacerbated at present by the widespread doubts over Greece's eurozone membership.

"What we're seeing is that people are more worried about getting their money back. What people see is that all the risk is near term," Mr McQuaid said.

"If you can imagine a general risk-off environment, investors aren't really going to be hugely reassured by just opinion polls against the possibility of a shock result," said Austin Hughes, chief economist at KBC Ireland.

Hopes China would act to counter slowing European growth were dimmed after influential academics said Beijing should shun aggressive fiscal stimulus.

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