Euro Drops on Greece Concerns; Asia Stocks, Crude Oil Decline
By James Poole
March 18 (Bloomberg) -- The euro weakened against the dollar and the yen for a second day on concern Greece won’t receive aid from the European Union next week and may need help from the International Monetary Fund. Asia stocks and oil fell.
The euro dropped to $1.3672 per dollar as of 5:50 p.m. in Tokyo from $1.3738 yesterday in New York. The MSCI Asia Pacific Index lost 0.3 percent to 124.62, declining for the first time in three days. Standard & Poor’s 500 futures were down 0.2 percent. The Stoxx Euro 600 was little changed at 8:50 a.m. in London. Crude oil dropped 0.9 percent to $82.20 a barrel and copper slid 0.6 percent to $7,490 a metric ton.
While Greek government proposals to reduce its deficit led S&P to affirm Greece’s investment-grade credit rating on March 16, the shift in Germany underscored a rift in the European Union as the global economy emerges from the worst slump since World War II. Michael Meister, the chief finance spokesman for German Chancellor Angela Merkel’s party, said attempting a Greek rescue without the IMF “would be a very daring experiment.”
“Fundamentally the euro will be undermined by the situation, even though there may not be a complete sovereign default by Greece,” said Derek Mumford, a Sydney-based senior consultant at HiFX, a foreign exchange risk management firm. “The euro-zone will have low growth and the euro will suffer.”
The yen strengthened to 123.58 per euro in Tokyo from 124.06 yesterday in New York. The Japanese currency snapped a two-day drop against the Australian dollar after Chinese newspaper reports indicated the nation, the fastest-growing major economy, is trying to quash land and currency speculation.
Risk Aversion
“Worries over further monetary tightening in China and political discord within Europe over a rescue package for Greece are sparking risk aversion,” said Lee Wai Tuck, a currency strategist at Forecast Pte in Singapore. “This is leading to buying in the yen and the dollar and selling of the euro.”
Greece may seek aid from the IMF over the April 2 to April 4 Easter weekend, Dow Jones said today, citing a senior Greek official it didn’t name.
China has banned banks from lending to developers found to be hoarding land or holding back sales of apartments to wait for higher prices, the China Securities Journal said today, citing an unidentified source.
Yuan forwards snapped a three-day decline after a trade group said the government is testing the ability of companies to withstand a stronger currency. China is conducting yuan stress tests for 12 industries, Zhang Wei, vice chairman of the China Council for the Promotion of International Trade, said at a briefing in Beijing today. The yuan’s 12-month forwards gained 0.1 percent to 6.6650. The contracts reflect bets the currency will strengthen 2.4 percent from the spot rate of 6.8264.
Intervention Speculation
Asian currencies declined from near their strongest levels since 2008 on speculation central banks will intervene to damp appreciation that may hurt exports. The South Korean won dropped 0.5 percent to 1,133.85 per dollar. Central banks intervene in the currency markets by arranging purchases or sales.
“There’s some rumors that the Bank of Korea has been in the market,” said Gerrard Katz, head of foreign-exchange trading at Standard Chartered Plc in Hong Kong. “Fundamentals still point to a lower dollar against Asian currencies.”
Credit risk increased in Asia, according to prices obtained from Citigroup and Morgan Stanley. The Markit iTraxx Australia index rose 3 basis points to 82.5 basis points as of 7:25 p.m. in Sydney. It was at 79.5 basis points as of 11:20 a.m. The Markit iTraxx Japan index increased 2.5 basis point to 122.5 basis points as of 5:15 p.m. in Tokyo. It was at 119 basis points as of 9:12 a.m. The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan rose 2.5 basis points to 93.5 basis points as of 4:23 p.m. in Singapore. It was at 90 basis points as of 8:20 a.m.
Asia Stocks
Five shares fell for every three that rose on the MSCI Asia Pacific Index, which has advanced 3.4 percent this year. Japan’s Nikkei 225 Stock Average lost 1 percent, the biggest drop among major markets in Asia.
Westfield Group, the world’s largest owner of shopping malls by market value, gained 2.2 percent in Sydney after Deutsche Bank AG upgraded the stock. Mitsui Fudosan Co., Japan’s largest developer, dropped 2.4 percent after a downgrade from Morgan Stanley.
A combination of record mutual fund inflows and the world’s fastest economic growth are failing to lift shares in the largest developing nations with valuations at the highest level versus advanced countries since at least 1995.
Emerging-market stock funds lured $86.6 billion in the year through January, the most in 14 years of data, according to Cambridge, Massachusetts-based researcher EPFR Global. MSCI’s developing nation index slid 2.2 percent from this year’s peak on Jan. 11 and pared an 80 percent rally in the previous 12 months that sent its price-to-book ratio to a record 17 percent over the MSCI World Index, data compiled by Bloomberg show.
Oil, Copper
Crude oil declined as the dollar gained and a government report showed fuel demand dropped and crude supplies rose in the U.S. The Organization of Petroleum Exporting Countries, supplier of about 40 percent of the world’s oil, agreed to keep its production limits unchanged for a fifth meeting. It cut quotas by a record 4.2 million barrels a day in late 2008 when global demand collapsed because of the recession.
Copper for three-month delivery fell for the first time in three days.
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