Euro drops to near 4-month low on Greek deadlock
The euro fell to a nearly four-month low against the dollar on Monday on fears Greece could exit the euro and worries that weak industrial data signaled that Europe was heading for recession.
Concerns about slowing Chinese and global growth also drove down higher-yielding currencies and boosted the safe-haven dollar and yen. The Australian dollar fell to a five-month low against the greenback, while the New Zealand dollar dropped to a 4-1/2-month trough.
Greece's political impasse, as a major Greek leftist party refused to join a unity government or create a government of technocrats, also pushed the country's sovereign spreads over German bunds to their widest level since November.
Greece's troubles helped drive up Spain's and Italy's borrowing costs. Spain's bill auctions also showed weak demand on Monday, with yields of 2.985 percent, sharply higher from 2.623 percent seen last month.
Adding to bearish sentiment on the euro was data showing euro-zone industrial production unexpectedly fell in March, driving worries that the region's recession may not be as mild as policymakers hope.
The euro <EUR=> fell as low as $1.2823, its lowest level since Jan. 18. It was last at $1.2835, down 0.6 percent. It has lost 3.1 percent so far this month after losing 0.8 percent in April. Some are forecasting a break toward $1.20.
Adding to headwinds for the euro, the conservative party of German Chancellor Angela Merkel suffered a crushing defeat on Sunday in an election in Germany's most populous state, a result that could embolden the left opposition to step up attacks on Merkel's European austerity policies.
The dollar index, which measures the greenback's value against six major currencies, rose for a fifth straight session, hitting a two-month high at 80.69 <.DXY>. It was last at 80.54 yen, up 0.5 percent.
Wall St down for 4th day of five, breaks support
U.S. stocks fell on Monday as investors dealt with the one-two punch of worsening political upheaval in the euro zone and the possibility that China's economy may be softening more than previously thought.The S&P 500 finished lower for the fourth day of five to close at its lowest level since February, adding fuel to worries of a coming market correction.
Economically sensitive shares, including banks and energy companies, paced the decline. Exxon Mobil Corp <XOM.N> lost 1.2 percent to $82.12. The NYSEArca oil index <.XOI> fell 1.8 percent. State television in Greece reported the president of the fiscally beleaguered country will continue talks on forming a coalition government, although Socialist leader Evangelos Venizelos said on Monday he was not optimistic that a government could be formed.
Banks were pressured by JPMorgan Chase & Co <JPM.N>, which announced the exit of a top executive after suffering trading losses that could reach $3 billion or more. JPMorgan shares fell 3.2 percent to $35.79 after losing 9 percent on Friday. The KBW Bank Index <.BKX> dropped 2.6 percent.
Adding to the swirling political winds in Europe, German Chancellor Angela Merkel's Christian Democrats suffered a crushing defeat on Sunday, which could encourage the opposition to increase attacks on her austerity policies. Merkel said on Monday the defeat was a bitter setback, but would not alter her view on how to achieve growth. The three major U.S. stock indexes pared losses after the European markets closed before selling reaccelerated near the end of trading, pushing the S&P 500 below an important support level at 1,340, which could trigger further selling.
The Dow Jones industrial average <.DJI> dropped 125.25 points, or 0.98 percent, to 12,695.35 at the close. The Standard & Poor's 500 Index <.SPX> lost 15.04 points, or 1.11 percent, to 1,338.35. The Nasdaq Composite Index <.IXIC> fell 31.24 points, or 1.06 percent, to 2,902.58.
Gold drops to 4-1/2-month low as euro sinks
Gold prices fell to a 4-1/2-month low on Monday, as the dollar strengthened and investors liquidated risky assets after political deadlock in Greece fed worries that the country could default, worsening the euro zone debt crisis. Spot gold <XAU=> hit a session low at $1,556.50 an ounce, its lowest since Dec. 30, 2011. It recovered slightly to trade at $1,561.55 an ounce at 2:32 EDT ( 1832 GMT), down 1.1 percent from $1,578.30 hit late Friday in New York. Benchmark June gold futures <GCM2> lost $23, or 1.38 percent, to settle at $1,561 per ounce, after trading as low as $1,555, a level last seen on Dec. 29.
Gold has moved in tandem with riskier assets this year as turmoil in Europe sank the euro and investors turned to the safety of the dollar, analysts said.
Crude ends at 5-month low on Greece, China woes
U.S. crude futures slumped to a five-month low on Monday as Greece's inability to form a new government raised fears it might exit the euro zone and worries about China's economic slowdown persisted, sparking a broad commodities sell-off.
Concerns about the euro zone economy were unabated as data showed that factory output in the region fell in March, adding to recent disappointing reports indicating the bloc's recession may not be as mild as analysts had thought.
In China, its central bank reduced bank reserve requirements in a bid to increase lending funds and forestall a deeper slide in the world's second largest economy. The move came after dismal industrial production data released on Friday. Meanwhile, U.S. crude stockpiles were forecast to have risen 1.5 million barrels in the week to May 11, according to a preliminary Reuters poll ahead of weekly inventory data. [EIA/S]
On the New York Mercantile Exchange, June crude <CLM2> closed $1.35 lower, or 1.4 percent, at $94.78 a barrel, the lowest since Dec. 19, when front-month crude settled at $93.88. It posted an intraday low of $93.65, also the lowest for front-month crude since Dec. 19. <CLc1>.
In London, ICE June Brent crude <LCM2> fell for the third straight session and settled at $111.57, dipping 69 cents, or 0.61 percent. It marked the lowest settlement for front-month Brent since Feb. 1, when prices closed at $111.56. June Brent hit a session low of $110.04, the lowest since Jan. 25's intraday low of $108.91. <LCOc1>
Nikkei set to fall, Greece fears keep investors on edge
Japan's Nikkei share average is expected to fall on Tuesday after Greece's struggle to form a coalition on Monday pushed the country closer to a costly and tumultuous exit from the euro zone. Market players said the Nikkei was likely to trade between 8,850 and 8,950 on Tuesday after Nikkei futures in Chicago <0#NIY:> closed at 8,865, down 1.2 percent from the close in Osaka <JNIc1> of 9,970.
U.S. stocks fell overnight, with the S&P 500 closing at its lowest level since February after Greece's president failed to pull together a coalition in talks on Monday, increasing the likelihood of another election and the country's rejection of a 130-billion EU/IMF bailout. Talks will continue on Tuesday. "With the concern about Europe's fiscal health, fundamental doubts about the strength of the global economy and the high yen, Japanese markets are likely to open down," said Hiroichi Nishi, equity general manager at SMBC Nikko Securities.
"But these factors have been pressuring the market for a while now, so prices have sunk. Buying on the dip might come in today."
The Nikkei <.N225> closed up 0.2 percent at 8,973.94 on Monday, snapping a three-day losing streak after China cut bank reserve ratios by 50 points to 20 percent at the weekend. The move was welcomed by investors, but also signalled China's growth may slowing more than previously thought.
Seoul shares seen lower, to test support at 1,900 points
Seoul shares are seen off to a weaker start on Tuesday, poised to extend a four-day slide as investors flee risky assets over worries that Greece could leave the euro zone, a key test for the psychologically-significant 1,900 level. "Bargain bids may to underpin the market somewhat at the 1,900 level but may only provide limited relief with downside pressure weighing heavily," said Lee Young-gon, an analyst at Hana Daetoo Securities.
Wall Street and European stocks fell sharply to post multi-month lows on growing fears of a Greek exit from the euro zone as its leftist, anti-austerity leader rejected a proposal to form a technocratic government, all but ensuring a new election he looks poised to win. Euro zone finance ministers dismissed talk of Greece leaving the euro zone as "propaganda and nonsense" on Monday, but said the country had to respect the terms of the bailout programme agreed with the EU and the International Monetary Fund.
Further weighing on sentiment were fresh signs pointing to a deepening recession in Europe, after data on factory output in the euro zone showed unexpected weakness in March.
HK stocks set for weak open; 9th straight loss in sight
Hong Kong shares are set to extend falls on Tuesday, with the benchmark stock index poised to register its worst losing streak in nearly two decades as fears of a Greece exit from Europe and weak Chinese growth keep investors on the backfoot.
The Hang Seng index <.HSI> closed down 1.2 percent on Monday, falling below its 200-day moving average for the first time since early February and retreating for an eighth straight session. The China Enterprises index <.HSCE> of top locally listed mainland firms fell 1.5 percent. The last time the Hang Seng index dropped for nine straight days was during an 11-day losing streak that ended in early May 1984.
Worries over Greece leaving the euro zone were compounded by data pointing towards a deeper recession in Europe, pushing investors away from risky assets and into safer havens such as U.S. Treasuries. Stocks on Wall Street fell with the S&P 500 <.SPX> closing 1.1 percent lower.
