THE EURO hit an 18-month low versus the dollar and global shares fell sharply yesterday over fears that Europe’s fiscal austerity plans may derail economic recovery.
Gold tumbled from an all-time high of $1,248.95 an ounce yesterday to a session low at $1,219.05 after it was swept up in selling of stocks and other commodities after it failed to break above the $1,250 level. Earlier, gold had soared to a record as concerns about the euro zone debt crisis spurred appetite for safer investments and drove the demand for US treasury debt.
The dollar reached its strongest level in a year versus a basket of key currencies.
Stocks and oil prices plunged despite data showing US retail sales and industrial production rose in April. The three major US stock indexes fell nearly 2 per cent or more while US crude oil futures prices slumped nearly 4 per cent or almost $3 below $72 a barrel.
EU authorities announced a massive debt safety net for Greece, Spain and Portugal this week, but investors remain sceptical those countries can take the pain of overhauling weak public finances.
“If you look long-term, everyone is worried about what these austerity measures will mean in terms of growth,” said Kathy Lien, director of currency research at GFT in New York.
The Dow Jones industrial average lost 207.76 points, or 1.93 per cent, at 10,575.19, while the Standard Poor’s 500 Index fell 27.09 points, or 2.34 per cent, to 1,130.35. The Nasdaq Composite Index was down 62.85 points, or 2.62 per cent, at 2,331.51. The EU’s emergency assistance plan has done little to bolster confidence in the euro system, a concern highlighted by White House economic adviser Paul Volcker. On Thursday, Mr Volcker said European debt troubles could undermine the single currency.
The euro slid as low $1.2358 on electronic trading platform EBS, the lowest since October 2008. It last traded at $1.2393.
“The euro hasn’t derived any benefits from any budget cuts from Spain and Portugal,” said Chris Turner, head of FX strategy at ING, which forecasts the euro will be at $1.15 in six months.
“People are either concluding that these cuts will be unsuccessful and debt sustainability remains a key issue, or they will be successful in aggressive fiscal tightening and that these economies would slow aggressively and the European Central Bank has to keep interest rates low,” he added.
Gold prices, which often climb in times of risk aversion, earlier soared to a record high of $1,248.95.
But when gold didn’t hit $1,250 or break above it, investors started selling the metal and it slid to a session low of $1,219.05. By early afternoon in New York, spot gold was trading at around $1,226.85.
The safe-haven appeal of US treasuries also rose dramatically, with the price of the benchmark 10-year note up 24/32, while its yield slipped to 3.444 per cent shortly after 5pm Irish time in New York.
Investors’ anxiety towards riskier assets also has been reflected in the movement of cash between markets this week.
Money market funds, perceived to be among the least risky investments, attracted new money this week for the first time since January as investors moved back into cash, data from EPFR Global showed.
At the same time, the amount of money pulled from risky, high-yield bond funds hit a five-year high, while equity funds in emerging markets also suffered.
The MSCI world equity index plunged 2.7 per cent, while the FTSEurofirst 300 index (FTEU) dropped 3.39 per cent to close at 1,014.25, with banks taking a beating.
The Stoxx Europe 600 banking index was down around 5.2 per cent. Spanish banks Banco Santander fell 8.98 per cent and and BBVA lost 7.58 per cent.
US crude oil fell 3.86 per cent to $71.53 per barrel, after hitting a session low of $71.05, the lowest since February 8th. – (Reuters)
BOND AUCTION NTMA TO RAISE UP TO €1.5 BILLION
THE NATIONAL Treasury Management Agency (NTMA) is to raise up to €1.5 billion from a bond auction to be held next week.
A 4 per cent bond due to mature in 2014 will be offered, along with a 4.5 per cent bond that will mature in 2020.
The NTMA said the auction size would be in the range of €1 billion to €1.5 billion, and is part of its regular funding programme.
The NTMA has raised €12.6 billion of the €20 billion required by the Government this year to meet the deficit in the public finances.
The auction will see the NTMA test the bond markets for the first time since the Greek economic turmoil intensified and the EU agreed a €750 billion fund to stem the euro zone sovereign debt crisis.
