Selloff in global markets slows but stocks stay down

Greek Prime Minister Antonis Samaras’ gamble on a snap election has European markets worried. — Reuters pic
Greek Prime Minister Antonis Samaras’ gamble on a snap election has European markets worried. — Reuters pic

LONDON, Dec 11 — A selloff in world stocks slowed today as oil prices steadied at a five-year low and lacklustre demand for virtually free ECB money stoked expectations that the bank will have to resort to full-blown quantitative easing.

Wall Street was expected to see a small bounce back after yesterday recording its biggest fall since October. But European markets were heading for a fourth day of losses as political worries in Greece pummelled its stocks again.

There were concerns too about the effectiveness of European Central Bank measures aimed at reviving the euro-zone economy and inflation.

Banks borrowed €130 billion (RM560.7 billion) of four-year loans in its latest handout of cheap loans, taking barely more than half of the total money that had been offered this year as the ECB tries to kick-start the region’s economy.

Investors had seen it as a final throw of the dice before deciding, probably early next year, if it will put aside Germany’s concerns and copy the approach of the US, Britain and Japan and start buying government bonds.

“The bottom line is that the disappointing TLTRO (loan) outcome has brought sovereign QE another step closer,” said Nick Kounis, head of macro and financial markets research at ABN Amro.

“It now looks close to impossible for the ECB to achieve anywhere near a trillion euro balance sheet expansion with its existing measures.”

European shares initially rose and the euro and government bond yields in most of the 18-country bloc fell after the result, but the effects were quick to wear off.

As the start of US trading approached, the pan-regional FTSEurofirst was down 0.3 per cent while the main stock market in Athens had plunged another 7 per cent to take its losses for the week so far to an eye-watering 20 per cent.

Oil prices in contrast saw some welcome relief, rising 1 per cent to just under US$65 a barrel. But after another sharp drop yesterday and more evidence that Saudi Arabia, the world’s top producer, is content to let the slump continue, Middle Eastern stock markets took another lurch lower.

Russia and the battered rouble was back in the firing line too, hitting a new all-time low as a 100-basis-point interest rate hike by the central bank failed to quell fears that the country is heading for a full-blown financial crisis.

The bank has now raised rates by a cumulative 500 basis points this year. That is despite a sharp slowdown in economic growth fuelled by worries about oil and Russia’s deteriorating relations with the West over Ukraine.

“There is no way this won’t be impacting the banks and the corporates,” said UBS strategist Manik Narain. “They should send a much more determined signal that they will do whatever it takes, for as long as it takes.”

Dollar dips, oil steadies

Upbeat retail sales and jobless claims figures helped the dollar against both the yen and the euro, having earlier looked to be heading for its fourth straight day in the red.

Despite the recent volatility displayed by the dollar, the divergence in US monetary policy from Europe and Japan could continue to favour the greenback in the long term.

New Zealand’s central bank governor said he expected to see more central bank money printing next year than both the past two years, despite the US ending its efforts.

“There are question marks around Japan and certainly in Europe,” Reserve Bank of New Zealand Governor Graeme Wheeler told a media briefing.

The prospect of ECB quantitative easing next year kept German bond yields pinned at record lows, though like stocks, Greek bonds remained in a tailspin as worries continued that this week’s move to bring forward a presidential vote could backfire and bring the anti-bailout Syriza party to power.

Asian stocks had sagged overnight too following on from Wall Street’s tumble yesterday. The volatile Shanghai Composite Index shed earlier gains and fell 0.8 per cent after regulators announced a flood of IPO approvals, while Tokyo’s Nikkei lost 1 per cent, pulling further back from 7½-year highs hit on Monday. — Reuters

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