While you were sleeping: Greece roils the markets

Friday 23rd April 2010

A worsening deficit situation in Greece, a downgrade of its debt rating by Moody’s Investors Service led to soaring Greek bond yields and weaker equities in both Europe and on Wall Street.

In late trading, the Dow Jones Industrial Average was down 0.06%, the Standard & Poor’s 500 Index was 0.09% higher and the Nasdaq Composite edged up 0.48%.

Among the active stocks were Qualcomm Inc and eBay Inc which both plunged after signalling profits might be harder to come by in the months ahead.

The Chicago Board Options Exchange Volatility Index, or VIX, which is known as Wall Street’s ‘fear gauge’ rose 0.12% to 16.34.

Sales of previously owned homes in the U.S. rose last month for the first time in four months, paced by a government tax credit and better weather, according to the National Association of Realtors. Purchases climbed 6.8% to a 5.35 million annual rate, from a revised 5.01 million pace in February. The median prices climbed 0.4% from March 2009.

A separate report showed the number of claims for unemployment benefits fell last week as the rebounding economy prompted companies to cut fewer jobs. Initial jobless applications dropped by 24,000 to 456,000 in the week ended April 17, the Labor Department said.

Another report showed that wholesale prices in the U.S. rose more than forecast in March, boosted by higher costs for energy and the biggest gain in food since 1984. The 0.7% increase in prices topped the median economist estimate of a 0.5% increase.

The Stoxx Europe 600 Index fell 1.1% to 265.32.

In the UK, the FTSE 100 shed 1.02%, Germany’s DAX lost 0.99% and France’s CAC 40 tumbled 1.33%.

Among the most actives were Nokia Oyj, ABB Ltd, Nestle SA, Alpha Bank SA, Nexans SA, Credit Suisse and Sodexo SA.

Greece's budget gap last year was worse than feared, the European Union's statistics office revealed on Thursday, and Moody's Investors Service downgraded its rating of Greek government debt.

Greece's two-year government bond yield soared four percentage points to 12.26% as investors bet the country would need a bailout to avoid restructuring its debt or defaulting, according to Reuters.

The Greek government posted a budget deficit of 32.34 billion euros or 13.6% of gross domestic product in 2009, not the 12.7% it had reported earlier, Eurostat said in a review of countries' deficits throughout the region.

It added the deficit might be revised again, by between 0.3 and 0.5 percentage points of GDP, because of uncertainty about the quality of Greece's data and accounting.

The EU's Economic and Monetary Affairs Commissioner Olli Rehn said Greece looked increasingly likely to have to ask for emergency assistance.

"I'm not a clairvoyant, but I think it is increasingly likely that Greece will have to use this mechanism. But it is indeed a matter for the Greek government," Rehn told Reuters Insider in Washington where government debt woes featured high on the agenda of meetings of world finance officials.

The Dollar Index, which measures the greenback against a basket of six major currencies, rose 0.43% to 81.57.

The euro plunged for a sixth-straight session to US$1.3260 after the Moody's news, its lowest level since May 2009, according to Reuters data. It was last at US$1.3294, down 0.7% on the day. Against the pound, the euro fell as low as 86.32 pence, its weakest since late January.

Against the Japanese yen, the dollar was down 0.03% at 93.10 from a previous session close of 93.130.

US Treasury debt prices rose on the worries over Greece, despite stronger U.S. economic data.

The benchmark 10-year note was up 3/32, to yield 3.73%, while the two-year note was up 1/32, yielding 0.98%. The 30-year bond was up 5/32, with the yield at 4.61%.

The Reuters/Jefferies CRB Index, which tracks 19 raw materials, rose 0.13% to 277.12.

US June light crude oil futures dropped almost US$2 per barrel to a low of US$81.73 before recovering to trade at US$83.10, down 58 cents at midday in New York. Front-month crude hit an 18-month high above US$87 on April 6.

Spot gold was bid at US$1135.35 an ounce at 1454 GMT, against US$1145.30 late in New York on Wednesday. U.S. gold futures for June delivery on the COMEX division of the New York Mercantile Exchange fell US$12.70 to US$1136.10 an ounce.

Businesswire.co.nz

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