The euro slumped under €1.31 to hit a fresh two-month low, stocks fell sharply and bond yields rose further yesterday as Ireland’s €85-billion bailout failed to dispel fears over the eurozone debt crisis.
In late London deals, the euro was at $1.3090, after hitting $1.3064 earlier for its lowest point since September 21. On Friday, the European single currency bought $1.3240.
The European Union and International Monetary Fund on Sunday agreed to an €85-billion ($113-billion) deal for Ireland but the initial boost the announcement gave the euro faded on worries Spain and Portugal could be next in line.
Those worries also pushed up yields, or the return for investors, on bonds from weaker so-called eurozone peripheral countries and dented core countries as well.
Europe’s main stock markets fell sharply, with the London FTSE 100 index dropping 2.08 per cent to close at 5,550.95 points.
In Paris, the CAC 40 shed 2.46 per cent to 3,636.96 points while in Frankfurt the DAX lost 2.20 per cent at 6,697.97 points.
Dublin meanwhile finished up 0.03 per cent, having earlier risen sharply as Irish investors applauded news of the bailout.
Madrid fell 2.33 per cent, Milan 2.67 per cent, Amsterdam 1.96 per cent and Swiss shares fell 1.33 per cent.
“The market’s gaze remains fixed on events playing out in Europe as well as on the Korean peninsula, with European ministers finally agreeing on a bailout for Ireland while South Korean forces remain on high alert,” said CMC Markets analyst Michael Hewson.
“It is difficult at the moment, with sentiment so weak over concerns (on) Portugal and Spain, to see any rallies as anything but opportunities to sell into strength,” IG Index strategist David Jones told AFP.
Traders remain fearful of a domino effect following the bailouts of Greece and Ireland as investor confidence is under threat in other struggling eurozone nations.
“The eurozone debt and banking crisis still dominates market focus with risk of intensifying contagion as the ‘dominoes’ collapse,” said VTB Capital economist Neil MacKinnon.
He added that there was also “an increase in the scope and cost of prospective bailouts ending in debt restructuring and default.
“The euro can only weaken in this environment especially if there is a scramble for dollar liquidity going into the year end.”
On Wall Street, news of a good start to the US holiday shopping season failed to help sentiment.
At midday, the blue-chip Dow Jones Industrial Average was down 1.31 per cent while the S&P 500 index, a broader measure of the market, slid 1.18 per cent. The tech-heavy Nasdaq fell 1.35 per cent.
The National Retail Federation said 212 million Americans visited stores or shopped online over the weekend of Thanksgiving, up 8.7 per cent versus last year.
“Even a better-than-expected turnout... has fallen on deaf ears,” said Joseph Hargett of Schaeffer’s Investment Research.
Germany’s finance minister yesterday slammed market speculation over the financial woes of Portugal as irrational as he hailed a rescue deal for Ireland that he said would bring Dublin back on track.
“The speculation on the international financial markets can barely be explained rationally,” Wolfgang Schaeuble told German radio station Deutschlandfunk.
Countries are put under pressure, leading to “fear effects,” Schaeuble said.”The markets can make a lot of money in this way,” he added.
Investors pushed up the yield on Irish bonds back above 9.0 per cent yesterday evening, indicating a lack of confidence in Dublin’s ability to implement its austerity plans as well as uncertainly surrounding elements of the rescue package.
Spanish 10-year bonds also hit a new record above 5.40 per cent, a rise of 25 basis or 0.25 percentage points yesterday while Portuguese 10-year bonds were hovering around 7.0 per cent, up 0.14 percentage points.
The yield on 10-year German bonds, which are the lowest in the eurozone, also rose to 2.759 per cent, up 0.03 percentage points. The yield on French bonds rose 0.07 percentage points to 3.159 per cent.
Outside the eurozone, the yield on British bonds dipped 0.01 percentage points to 3.33 per cent.Aside from eurozone woes, investors are mindful of simmering Korean tensions after a deadly exchange of fire last week. In earlier Asian deals, hopes for the US economic recovery helped soothe investor sentiment.
Hong Kong rallied 1.26 per cent and Tokyo rose 0.86 per cent, with consumer electronic stocks like Sony buoyed by signs of a strong US shopping season and a firmer dollar also providing support.
However, Shanghai shed 0.19 per cent as concerns persisted about Chinese efforts to cool the mainland economy.