May 7, 2010
Policy Makers Seek to Calm Markets as Slide Continues
By MATTHEW SALTMARSH and BETTINA WASSENER
PARIS — Stocks slid again Friday in Europe after sharp falls in Asia, as policy makers around the globe sought to calm nervous investors who fear that Greece’s debt crisis will spread within Europe and beyond.
“We’ve seen a brutal correction in the markets, but it has not been totally unexpected,” said Yann Lepape, head of fixed income, currency and credit strategy at the bank private Oddo & Cie in Paris. He noted that stocks had rallied early this year and financial crises are normally marked by several waves of asset-price fluctuation.
“Neither the micro- nor the macro-economic situations are alarming yet,” he added. “The solution lies in budgetary rigor.”
Finance ministers from the Group of Seven industrialized nations were due to hold a conference call Friday to discuss the Greek debt situation. Later in the day, leaders from the euro-area countries will meet in Brussels to sign off on their unprecedented support package for Greece and to discuss the situation.
In Tokyo, the Bank of Japan pumped 2 trillion yen, or $22 billion, into financial institutions Friday to ease liquidity and soothe markets. It was the first such emergency move since December, when concerns over Dubai’s debt sparked a credit crunch.
Stock markets were volatile again on Friday. The FTSE-100 opened down 1 percent but regained some ground and was 0.3 percent lower. The CAC-40 in Paris was off 1. 4 percent and the Euro Stoxx 50 fell by 1.1 percent by late morning.
But U.S. stock futures pointed to a stronger start on Wall Street, with equities expected to rebound after the sharp falls Thursday. Aside from the sovereign debt crisis, U.S. investors will be focusing on the release of labor market data for April later Friday.
The Dow took a brief, 1,000-point plunge Thursday before recovering. It ended down 347.80, or 3.2 percent, at 10,520.32.
The euro, which has been mauled by the Greece worries since the start of the year, was quoted at $1.2732 in London Friday, above its level late Thursday of $1.2619.
In Britain, the pound fell sharply against the dollar, to $1.4634 in morning trading, from $1.4833 late Thursday, and the price of government bonds, or gilts, dropped as the general election on failed to produce a clear winner. Several days of horse trading between the parties on forming a government are now likely. But investors are concerned that the next government — probably a minority Conservative government or a coalition — will not be strong enough to tackle the budget deficit.
The stock market in Japan was hit the hardest in Asia. The Nikkei 225 index closed down 3.1 percent, adding to its 3.3 percent fall on Thursday.
The rout prompted Prime Minister Yukio Hatoyama to tell reporters Friday morning that “Japan is very concerned about Greece’s problems and the government will deal solidly with any fallout.” He added: “We intend to do our best.”
Markets have been under pressure despite a 110 billion euro, or $139 billion, rescue package for Greece, agreed to over the weekend by the International Monetary Fund and the European Union. Investors were disappointed that the European Central Bank did not discuss buying government bonds at its Thursday meeting.
“It’s clear that whether its morally right or not, if market stabilization is our goal we need the E.C.B. to start being more unconventional,” analysts at Deutsche Bank said in a research note Friday. “The E.C.B. buying unwanted European peripheral debt surely must be a serious option.”
The yield on benchmark Greek bonds continue to surge Friday and was quoted at 11.7 percent for the 10-year . Investors remained doubtful that the support package could help Greece manage its spiraling debt without a rescheduling.
Prices of many European corporate bonds also came under pressure. A Markit iBoxx index of euro-denominated corporate bonds with a maturity of 10 years and more was down 0.6 percent
“We can’t help thinking that whatever the explanation for the plunge it wouldn’t have happened if the sovereign crisis wasn’t in full swing,” analysts at Deustche Bank said in a research note, referrring to the unusual swing on Wall Street Thursday. “Nerves have been frayed.”
On Friday in Asia, the Kospi index in South Korea was 2.2 percent lower. The Hang Seng index in Hong Kong and the Straits Times index in Singapore were down about 1 percent. The Shanghai composite index, mainland China’s leading market gauge, sagged 1.9 percent, after having slumped 4.1 percent on Thursday. Australia’s benchmark index in Sydney was 0.5 percent lower.
Japan’s finance minister, Naoto Kan, told journalists Friday that the Group of Seven industrialized nations would discuss Greece’s fiscal situation in a conference call later Friday. The group consists of the United States, Britain, Canada, Germany, Italy, France and Japan.
“Japan and the United States are watching to see what our friends in Europe ultimately decide to do,” Mr. Kan told a press conference Friday morning. “I believe there will first be a report from the Europeans on what has happened so far,” he said.
Although Mr. Kan said he did “not believe that at this point we will be asked to engage in a specific action, like currency intervention,” the mere news of the meeting helped pull the euro slightly higher.
In some ways, the declines in stocks seem counterintuitive in Asia. Most of the Asia-Pacific region, excluding Japan, has far lower debt burdens to contend with than Greece, and remains well positioned to post healthy growth rates this year and next. Economists also stress that, unlike their counterparts in Europe, most Asia-Pacific financial institutions have only minimal direct exposure to Greek debt.
In the latest signs of the region’s economic health Australia’s central bank on Friday revised up its forecasts for economic growth, while China Daily, the state-run English language newspaper, on its front page carried the headline
“Consumer confidence at record high.”
Like Greece, Japan is also has a very high national debt.
“Investors are also nervous about Japan’s sovereign risk,” said Yoshio Takahashi, Tokyo-based strategist at Barclays Capital. “We’re not talking about a crisis here today or tomorrow,” he said. “But it could become a serious concern in the next few years.”
Hiroko Tabuchi reported from Tokyo, and Sonia Kolesnikov-Jessop contributed reporting from Singapore.
TOKYO, May 7, 2010 (AFP)
Japan’s central bank on Friday said it would inject more than 20 billion dollars in liquidity to calm markets in response to global turmoil triggered by the Greek debt crisis.
Prime Minister Yukio Hatoyama also vowed to take necessary steps as Tokyo stocks closed 3.10 percent lower and the yen remained at relative highs against the euro following overnight panic selling on US markets.
“I am very concerned,” Hatoyama told reporters. “The government should take responsible measures,” he added without specifying what steps his centre-left government was considering.
The Bank of Japan offered to provide two trillion yen (21.8 billion dollars) in liquidity to financial institutions such as banks and brokerages against their collateral pooled at the BoJ, starting Friday and ending May 27.
It was the first move of its kind since December during Dubai’s sovereign debt scare and the biggest since December 2008 when the financial crisis sparked by the Lehman Brothers collapse in September that year emerged.
“The Bank of Japan aims to increase a sense of security in the markets by providing ample funds,” said BoJ official Yuichi Adachi.
The injection into the short-term money market via a same-day operation was to boost liquidity as investors moved out of the euro, analysts said, before sentiment towards the single currency improved later in the day.
“It was a case of the central bank sending a message to show it was acting swiftly to respond to the market,” said Tsuyoshi Ueno, senior economist at NLI Research Institute.
Eurozone debt fears engulfed Asian markets after US shares on Thursday saw a spectacular intraday fall on deepening concerns that Greece’s debt crisis would spread through Europe.
The BOJ said its cash injection aimed to support Japanese stocks by curbing the yen’s rise and making financial market conditions more accommodative.
However “what’s underlying the Greek crisis is markets’ deep-rooted distrust of the single currency, which global financial markets had never experienced before,” Ueno said.
Chief government spokesman Hirofumi Hirano told reporters that Japan must ensure that Greece’s problems won’t affect the Japanese economy, the world’s second largest.
He also said the government would make appropriate decisions on foreign exchange by watching market moves.
Finance Minister Naoto Kan said his counterparts from the Group of Seven — Britain, Canada, France, Germany, Italy and the United States — would hold a teleconference later in the day on the Greek crisis.
Kan said they were unlikely to agree to intervene in currency markets.
However, sentiment towards the euro improved as it regained some ground to 1.2669 dollars from 1.2644 dollars in New York late Thursday, where the unit at one point hit 1.2523, its lowest since March 2009.
It traded at 116.46 yen in Asia, compared with 114.02 in New York Thursday.
Panic selling swept US markets on Thursday with the Dow Jones suffering its biggest ever intraday drop of almost 1,000 points, or nearly nine percent. It later recovered to close 3.2 percent lower.
— Dow Jones Newswires contributed to this report —