European and US stocks hit by one of the worst quarterly falls for the markets in the past decade.
|Stock market values are uncertain due to the possibility of a Greek default on eurozone loans [Reuters]|
Stock markets in Europe and Asia have slumped and the euro has slid to an eight month low versus the dollar on increased fears that Greece could default on its debt, potentially pitching the global economy into recession.
Bank shares were battered in Europe on Monday as investors feared the impact of a Greek default on holders of the country’s bonds, such as Franco Belgian financial group Dexia, whose stock slumped nearly 10 percent.
Demand for safe-havens such as US government bonds and the Japanese yen was on the rise. Treasuries prices were also supported by the Federal Reserve’s first bond purchase for Operation Twist, its latest bond program aimed at helping the US economy.
The 2012 draft budget approved by Greece’s cabinet on Sunday predicted a deficit of 8.5 per cent of gross domestic product for 2011, well over the 7.6 per cent target.
“There continues to be very little clarity with respect to a solution (in Europe). More time is needed, and there’s no real driving influence to put money back in the market,” said Joseph Cangemi, managing director at BNY ConvergEx Group in New York.
European policymakers appeared no nearer to agreeing on a definitive solution to the crisis. Officials meeting on Monday were discussing ways to leverage the bloc’s rescue fund and pressure Greece to implement agreed structural reforms.
“Ultimately, Greece would need to see its debt written down by more and with that you need probably some kind of shoring up of the banking sector,” said Alec Letchfield, chief investment officer at HSBC Asset Management.
US stocks briefly turned positive after an index of US manufacturing activity came in better than expected, but Greek concerns eventually kept Wall Street in the red.
On Friday, stocks closed their worst quarter since 2008. The Dow Jones industrial average lost 28.00 points, or 0.26 per cent, at 10,885.38. The Standard & Poor’s 500 Index was down 4.89 points, or 0.43 per cent, at 1,126.53. The Nasdaq Composite Index was down 14.09 points, or 0.58 per cent, at 2,401.31.
The MSCI All-Country World index was 1.5 per cent lower, near a 14-month low set in September. The FTSEurofirst 300 of top European shares fell 1.3 per cent.
Against the safe-haven yen, the euro was down 0.9 per cent at 102.194 yen on EBS, not far from its decade low of 101.946 struck in September.
“Euro zone bank issues remain a big issue and we expect the euro’s downside to continue,” said George Saravelos, G10 FX strategist at Deutsche Bank.