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Euro Falls Sharply, Stocks Lower

Published: May 7, 2012 | 7:59 am
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LONDON—The euro fell sharply early Monday and stocks opened lower in Europe after weekend elections in France and Greece resulted in votes against austerity, raising questions about the euro zone’s ability to solve its sovereign-debt problems.

The DAX in Frankfurt was down 0.9% and the CAC-40 in Paris was down 1.6%. The U.K. market is closed for a bank holiday. German bund futures, regarded as a haven for investors, opened higher. The June future hit a new contract high at 142.44 shortly after the 6 a.m. GMT open.

“The election outcome in Greece creates significant uncertainty ahead for the country primarily and the broader spectrum of euro-area assets,” said Goldman Sachs strategists in a note to clients.

The euro was trading at $1.2986 early in the European morning, dipping below the psychologically important $1.30 level and down from $1.3083 in late New York business Friday. Earlier it touched $1.2955, its lowest level since January.

The euro “has opened lower in the wake of weekend elections in France and Greece. The euro dropped at the start of Asia trade and pressure has yet to abate as the session has progressed. The risk is that the euro declines further in the days ahead,” said CitiFX in a strategy note.

Yields on Greek 10-year bonds jumped in early business Monday, while there were more modest increases in other European sovereign bond yields. The Greek 10-year bond yield was quoted at 20.64%, up 0.43 percentage point. The equivalent French yield was up 0.03 percentage point at 2.86%, Italy’s was up 0.08 percentage point at 5.70% and Spain’s was up 0.07 percentage point at 5.79%, according to data provider Tradeweb.

Earlier, Asian stock markets tumbled. “Across Asia, markets have been brutally sold off after election outcomes in France and Greece caused deepening Europe concerns,” said Stan Shamu, market strategist at IG Markets in Melbourne.

“News of the [French] Socialist Party’s victory hit markets by storm today as we saw risk assets drop straight after the open. Reports that fringe parliamentary parties have made substantial electoral gains in Greece are also of significant concern,” he added.

Hong Kong’s Hang Seng Index declined 2.7% while the Nikkei 225 dropped 2.8%.

In other markets, oil and gold prices also dropped as investors pulled out. June Brent crude oil futures were down 85 cents at $112.33 a barrel while June Nymex crude was down $1.45 at $97.04. Spot gold was down $3.70 at $1638.70 an ounce.

In the U.S. Friday, stocks fell after an employment report that was seen as disappointing. The Dow Jones Industrial Average lost 1.3% while the broader S&P 500 fell 1.6%.

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