Euro Erases Gains as Bailout Optimism Wanes
The euro weakened to $1.2712 at 7:20 a.m. in London and was 0.2 percent below last week’s closing level, after strengthening as much as 2.7 percent yesterday. Photographer: Chris Ratcliffe/Bloomberg
May 11 (Bloomberg) -- Stephen Gallo, head of market analysis at Schneider Foreign Exchange, talks about the outlook for the euro after the European Union unveiled a 750 billion-euro ($954 billion) financial assistance package for debt-stricken member states. Gallo speaks with Bloomberg's Rishaad Salamat and Manus Cranny in London. (Source: Bloomberg)
May 11 (Bloomberg) -- Ian Harnett, managing director at Absolute Strategy Research, talks with Bloomberg's Betty Liu and John Dawson about the European Union-led loan package and its impact on the euro and sovereign debt. (Source: Bloomberg)
May 11 (Bloomberg) -- Simon Brazier, co-head of U.K. equities at Threadneedle Asset Management, talks with Bloomberg's Rishaad Salamat about the outlook for British stocks amid uncertainty over the next government. (Source: Bloomberg)
May 11 (Bloomberg) -- Jason Rogers, a credit analyst at Barclays Plc, talks with Bloomberg's Haslinda Amin about Chinese banks' lending policy. China aims to cap new loans at 7.5 trillion yuan this year, down 22 percent from 2009’s record, and have told banks to set aside more deposits as reserves three times since Jan. 1 amid concerns that the credit binge will result in a pile-up of bad debts. Rogers, speaking in Singapore, also discusses prospects for banks and financial firms in South Korea, Japan and India. (Source: Bloomberg)
The euro lost all of yesterday’s gains on concern the almost $1 trillion lending plan to bail out indebted nations in Europe will fail to avert a slowdown in the region. Asian stocks, copper and U.S. index futures fell after China’s inflation rate accelerated to an 18-month high.
The euro, after yesterday strengthening as much as 2.7 percent against the dollar, traded 0.3 percent weaker than last week’s closing level as of 1:45 p.m. in Tokyo. The MSCI Asia Pacific Index dropped 0.7 percent to 119.29 as declines in mining companies and Japan’s banks countered positive earnings news from corporations including Sony Corp. Standard & Poor’s 500 Index futures lost 0.6 percent, following the biggest jump in U.S. stocks since March 2009.
“Markets realized quickly that this crisis won’t be cured by adding liquidity, no matter how big it is,” said Toshihiko Sakai, head of trading for currencies and financial products at Mitsubishi UFJ Trust & Banking Corp. in Tokyo. “The structural problems of the euro zone will persist. I’m not surprised at all the euro is losing strength again.”
Greece may have its credit rating lowered to junk within the next month, Moody’s Investors Service said yesterday, citing the country’s “dismal” economic prospects. The European Central Bank’s decision to buy government bonds, a move designed to help reduce financing costs for countries including Greece, poses “significant stability risks,” council member Axel Weber said.
‘Multiyear Contractions’
The euro fell 0.5 percent to $1.2722, after yesterday gaining 0.5 percent. Against the yen, the currency dropped 1 percent to 117.98.
Every “fix” is accompanied by “an adjustment in the real economy,” Stephen Roach, chairman of Morgan Stanley Asia Ltd., said late yesterday in an interview on Bloomberg Radio with Tom Keene. “We saw that in Asia in the late ‘90’s, we saw that in the U.S. in ‘08, ‘09, and we’re going to see that in Europe, certainly in the peripheral countries, with significant multiyear contractions in the years ahead.’’
Two shares fell for each that rose on the MSCI Asia-Pacific Index. Hong Kong’s Hang Seng Index fell 1.4 percent, the region’s biggest loss, after China’s consumer prices rose 2.8 percent in April from a year earlier, the fastest pace in 18 months, and property prices jumped 12.8 percent, the statistics bureau said today. New lending of 774 billion yuan ($113 billion), reported by the central bank, was more than any of 24 economists forecast.
‘‘Price pressures have been building throughout the economy, strengthening the case for higher interest rates and a stronger yuan,” said Brian Jackson, a Hong Kong-based strategist at Royal Bank of Canada. “China is at risk of overheating, with spot fires breaking out in various parts of the economy.”
Copper, BHP
Three-month delivery copper on the London Metal Exchange fell 0.8 percent to $7,065 a ton in Shanghai and shares of BHP Billiton Ltd., the world’s largest mining company, dropped 1.9 percent to A$38.27 in Sydney. Mizuho Financial Group Inc. sank 4.1 percent to 164 yen on reports the company plans to sell about 1 trillion yen ($11 billion) of stock to bolster capital.
Japan’s Sony, maker of Bravia televisions and Cyber-shot digital cameras, said in a preliminary earnings statement it had a loss of 41 billion yen in the fiscal year ended March 31, 41 percent less than it forecast three months ago. The shares rose 0.3 percent to 3,090 yen. Cathay Pacific Airways Ltd., Hong Kong’s biggest carrier, rose 1.5 percent to HK$15.42 after it forecast “strong” financial results this year.
The Philippine Stock Exchange Index surged 3.9 percent, the most in eight months, after early results suggested a landslide presidential election victory for Benigno Aquino, whose late mother helped oust former dictator Ferdinand Marcos.
“We will see a relief rally and even a potential breakout similar to what happened in other markets that previously held their elections, like India and Indonesia,” said Paul Joseph Garcia, who helps manage $1.4 billion as chief investment officer at ING Investment Management Ltd.’s Manila unit.
To contact the reporter for this story: James Regan in Hong Kong Jregan19@bloomberg.net;
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