Euro fell against the U.S. dollar and the Japanese yen on Monday and stocks & commodities stumbled after frustrating US job data cast doubt on the strength of its economic recovery and as Hungary’s debt problems stimulated investors to dump riskier assets. According to analysts the euro fell below 1.19 dollars (S$1.68) in Asian trade on Monday for the first time since March 2006 as worries over European debt spread to Hungary.
Traders told if euro falls under $1.1850, more aggressive stop-loss selling may be had. Some stop-loss selling around $1.1950 provoked the fall.
In foreign exchange markets, the euro marked a fresh four-year low against the U.S. dollar at $1.1876 as headlines out of Hungary renewed concerns that the euro zone’s fiscal and debt problems could spread beyond Greece and Spain.
On Friday the euro was at $1.1898, from $1.1962 in late New York trade and the dollar was at 91.22 yen against the yen, from 91.60 yen. Before recovering to 108.55 yen compared with 109.56 yen in late New York trade, the euro hit its lowest level in more than eight years against the yen at 108.06 yen, before recovering to 108.55 yen compared with 109.56 yen in late New York trade, and a new record low against the Swiss franc, at 1.3853 Swiss francs.
Japan’s Nikkei index and the MSCI index for Asian stocks outside Japan both fell up to 3.6 percent.
S&P futures were down 1 percent, pointing to further losses on Wall Street later in the day, after US stocks fell on Friday to their lowest since February.
Mizuho Corporate Bank market economist Daisuke Karakama said, “I understand well why (market players) don’t want to hold the euro now. They don’t know what bad news will come out next regarding the European debt crisis.”
The Dow Jones Industrial Average fell 3.2% point on Friday. The new government harried to calm markets on Saturday with a pledge to keep the country’s official budget shortfall goal for 2010 while worried about Hungary is not facing any sovereign credit default.
Daphne Roth, head of Asia equity research at ABN Amro Private Bank in Singapore said, “The fear over the European debt crisis can come back to haunt us because the problems have not gone away. Take some money out (of the market) and come back after the World Cup football tournament. There’s no need to chase the market and face sleepless nights.”
Nikkei Stock Average of Japan was down 3.7%, S&P/ASX of Australia 200 fell 3.0%, Kospi Composite of South Korea was 2.2% lower, Shanghai Composite Index of China was off 2.1%, Hang Seng Index of Hong Kong slipped 2.5% and Sensex of India was 2.3% lower. By disappointing U.S. jobs data, investor sentiment was hit on Friday.
Credit Agricole Corporate & Investment Bank said in a note, “The trend in payrolls is one of improvement but the May outcome came as a blow to a market with bullish expectations going into the release.” Oil prices were also in stress on worries about the strength of the U.S. economic recovery with July Nymex crude oil futures down $1.47 at $70.02 per barrel.
In Japan, the stronger yen was wounding exporters with those companies exposed to Europe particularly hard hit due to the Euro’s sharp losses. Toyota Motor was down 4.2% and Canon was off 4.9%. Investrust Chief Executive Hiroyuki Fukunaga said, “Exporters especially are hit on concerns over a possible decline in export demand in Europe.”
Mr Karakama said, “The news on Hungary showed getting a bailout and being able to rehabilitate state coffers are two different things.” He added “investors would be reflecting on how this may apply to the recent bailout for Greece. Senior forex dealer Hideaki Inoue at Mitsubishi UFJ Trust and Banking said that the euro may fall to 1.1850 dollars as a broad range of investors further reduce exposure to risk-sensitive assets including the European currency.”
Shares of China were wounded through the prevailing weak sentiment, with Agricultural Bank of China’s impending initial public offering raising concerns that its fundraising activity would shrink liquidity in China markets.
Agricultural Bank is expected to raise between US$20 billion and US$30 billion, which could eclipse the IPO of Industrial & Commercial Bank of China, the largest IPO when it raised US$22bn in 2006.
Jacky Zhang, an analyst at Capital Securities said, “The future of the Shanghai market depends on how Agricultural Bank of China prices its mega IPO.” On Wednesday, the China securities regulator will review the bank’s IPO plan. Industrial Bank was 4.2% lower and Bank of China fell 1.6%.
In the Australian market, materials, materials, energy and financial stocks were leading a broad-based decline. BHP Billiton was down 3.7%, Rio Tinto shed 3.7%, while in the banking space Westpac fell 3.2%, ANZ slipped 3.3% and National Australia Bank was 3.7% lower. South Korean shares were also down across-the-board with financial plays leading the losses. KB Financial was down 4.1% and Woori Finance lost 4.6%.
The Taiex of Taiwan was 3.1% lower, Straits Times Index of Singapore was off 2.0%, Kuala Lumpur Composite Index of Malaysia fell 0.8%, Indonesia shares were down 3.1%, Philippine shares fell 2.7% and shares in Thailand were off 2.1%. New Zealand markets were close due to public holiday.
Currency strategist Win Thin, at Brown Brothers Harriman in a note “Fear is taking a toll. While the outlook for that country remains poor, it does not quite have the potential to roil markets as much as Greece or the other peripheral euro zone members.”
He said that BIS data explained cross-border banking exposure to Hungary from the third quarter of 2009 entire $158.1 billion, compared with $302.6 billion for Greece, $286.7 billion for Portugal and $1.15 trillion for Spain.
According to traders, central banks in the Philippines and Indonesia were suspected to have mediated in their respective markets for rising slowly in the U.S. dollar. Lead Japanese government bond futures were up 0.28 at 140.93 points as investors rushed into the safe haven of Japanes. From the New York close Friday, Spot gold was down $2.30 at $1,217.70 per troy ounce.