European stock exchanges wilted yesterday after gaining ground for five sessions, undermined by renewed concern for the health of the European banking sector, while on currency markets the yen jumped to a 15-year high against the dollar.
Market sentiment was ruffled by a report in the Wall Street Journal that “stress tests” carried out in July on European banks to assess their solvency “minimised their debt risks” and “understated some lenders’ holdings on potentially risky government debt”.
“An examination of the banks’ disclosures indicates that some banks didn’t provide as comprehensive a picture of their government-debt holdings as regulators claimed,” the paper said, citing its own analysis.
Analysts said investors were nervous and uncertain as to where they should put their money under the circumstances.
The banking sector attracted further attention in response to news of major personnel changes.
British lender Barclays announced it had chosen American Bob Diamond, head of its highly successful investment banking unit, to become chief executive in place of incumbent John Varley.
London-based HSBC meanwhile disclosed that Stephen Green would leave his post as chairman to become the trade minister in Britain’s new coalition government.
In London the FTSE 100 index shed 0.58 per cent to close at 5,407.82 points while in Paris the CAC 40 fell 1.11 per cent to 3,643.81. The Frankfurt DAX lost 0.60 per cent and ended the day at 6,117.89 points.
Elsewhere there were declines of 1.35 per cent in Madrid, 1.28 per cent in Madrid, 0.90 per cent on the Swiss Market Index and 0.84 per cent in Amsterdam.
On the currency market the euro fell against the dollar, penalised by the Wall Street Journal report, while the Japanese yen continued to strengthen, at one point jumping to a 15-year high against the US unit.
The euro in late-day trade was at $1.2721, down from 1.2883 on Monday.
The dollar was trading at 83.76 yen after 84.21 on Monday. But the greenback at one point plunged to 83.52 yen, its lowest reading since June 1995.
Analysts said the yen took advantage of its status as a refuge currency in times of economic uncertainty.
But the steady rise in the value of the yen in recent weeks has unnerved Japanese authorities who see the trend as a threat to Japanese exports and ultimately to the country’s recovery.
The gain in the yen was also supported by the absence of new measures from the Bank of Japan, whose policymakers convened Tuesday, to stem the upward momentum.
The bank kept its key interest rate unchanged at 0.1 per cent to continue nurturing a moderate recovery and signalled stronger concern about the impact of a surging yen.
“We are aware that Japanese exporters have been significantly affected by the yen’s strength,” Bank of Japan governor Masaaki Shirakawa told a press conference.
“We are very carefully watching the impact of the stronger yen on the Japanese economy,” he added.
The central bank last week extended a multi-billion-dollar loan programme to counter the effects of a strong yen on the Japanese economy.
In its second loan expansion since March, the bank said it would offer 10 trillion yen ($118 billion) in six-month low-interest loans in addition to 20 trillion yen from December’s three-month loan scheme.
But markets were left unimpressed by the move, as stocks slumped and the yen rose further following its announcement.
On Wall Street US stocks lost ground on the Euoropean banking news, with the Dow Jones Industrial Average 0.60 per cent at 10,385.19 at mid-day. The tech-heavy Nasdaq had also lost 0.60 per cent to reach 2,220.44.
Asian stocks markets mostly closed lower yesterday as traders took profits, with Tokyo’s Nikkei index slipping 0.81 per cent to 9,226.00 points. Sydney’s stocks ended flat.