Global stocks slid and the euro hit a four-month low yesterday on worries about a potential exit by Greece from the eurozone, while the outlook for slower world growth worsened after China moved to prop up lending.
Data pointing to a deeper European recession, along with growing skittishness about the Greek debt crisis, helped push European shares down nearly 2% to their lowest levels in more than four months.
Government debt gained, pushing German yields to record lows, as coalition talks in Greece on Sunday faltered, increasing the chance of new election in mid-June.
An inconclusive vote on May 6 left the country’s political leaders divided on its €130bn bailout, with neither side able to form a government.
“The growing possibility of Greece saying ‘bye-bye’ has put the entire region into the realm of the unknown,” the equity strategist and portfolio manager at Miller Tabak, Peter Boockvar, said.
Meanwhile, Italy sold €651m of a 5% 2022 bond at 5.66% and auctioned €557m of bonds due in 2025, the longest-maturity debt sold since October, at 5.9%.
Spain’s borrowing costs rose at a bill auction and Italy’s debt sale failed to assuage concern that the escalation of the Greek crisis risks overwhelming its Mediterranean neighbours.
Spain sold €2.9bn of bills, just below its maximum target, and offered the most since December to lure investors as demand eased. Italy auctioned 5.25 billion euros of debt, including its first bond of more than 10 years in seven months, as the Treasury reached the maximum set for the sale amid stronger demand.
Safe-haven currencies such as the dollar and the Japanese yen rose.
Expectations are for the euro to continue to fall. Analysts said the euro could hit a 2012 low of $1.2623 soon, with some forecasting a break toward $1.20.
The Dow fell 0.56% to 12,748.40. The S&P’s 500 Index was down 0.62%, at 1,345.06. The Nasdaq was down 25.64 points, or 0.87%, at 2,908.18.
Meanwhile, industrial production in the eurozone fell 0.3% from February, the EU’s Eurostat statistics office said.
Weighing on investor sentiment were signs of a struggling Chinese economy. China cut bank reserve requirements on Sunday to free up about 400bn yuan (€49.4bn) for lending in a bid to avert a sudden slowdown in the world’s second-largest economy.
German Bund futures rose as much as 92 ticks on the day to an all-time high of 143.69, while German 10-year yields plumbed a record low of 1.434%.